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
The listed Public Companies
function well in view of the SEBI regulations, the role of SEBI in addressing
the grievances of the shareholders and the listing agreement; there are serious
grievances to the minority shareholders or group even in a listed Public
Company. However, in view of the compulsory shareholding patterns in a listed
Public Company in view of SEBI (DIP) Guidelines etc., the situation of the
shareholders in a listed Public Company is different from a Private Limited
Company. When it comes to the listed Public Companies, there is a chance of
disposing their shares in the open market; but the same right is subject to
regulations when it comes to the transfer of shares in a Private Limited
Company. Again, it is a fact that no investor will be interested to buy the
shares in a Private Limited Company if they do not trust at the existing
shareholders. As such, there are serious issues concerning the rights of the
minority shareholders in a Company though we feel that the rights are well
protected with the clear provisions in the Companies Act, 1956 and other
regulations.
We have a law expecting the
auditor to be independent and protection is given to his appointment
considering the interests of all shareholders. We have the provisions of the
Companies Act, 1956 as to how the books of accounts are to be maintained and
every Company is supposed to follow the Accounting Standards prescribed by the
ICAI while presenting the financial statements and other connected documents.
We have the provisions where the minority or the shareholders of the Company
can ask for the winding-up of the Company too when they feel that it is just
and reasonable. We have a specialist forum like Company Law Board which can be
approached under section 397/398 of the Companies Act, 1956 when there is
oppression and mismanagement in the Company. The Company Law Board is provided
with enormous powers in order to put an end to the matters complained of and in
order to regulate the affairs of the Company. The Company Law Board can even
order investigation into the affairs of the Company upon the specific request
from the Petitioners in a Petition under section 397/398 of the Companies Act,
1956. Again, even if a shareholder is not qualified to approach the Company Law
Board under section 397/398 of the Companies Act, 1956, he can very well
approach the Company Court or can approach even the Civil Court asking for
remedial measures at times. The legal framework may appear to be very clear,
but, the practical issues deserve special consideration. In practice, many
rules and regulations are violated in closely held companies especially and it
is also very difficult to allege some malafides just because a Company could not
follow the procedure strictly. As such, the issue of rights of shareholders and
the protection to their interest is very complicated in view of the ‘majority
rule’ and the protection to the minority against the oppression and
mismanagement. I would like to expose my views as to what happens to the
minority shareholders or the group when they approach the competent forum
seeking relief and it is as follows:
Approaching Company Court:
Minority shareholders may
approach the High Court or the Company Court when there exist a just and
reasonable cause for asking to wind-up the Company. It is a fact that the High
Court intervention in Company disputes has been exercised so cautiously and in
many cases the remedy is effective. For example, handling any winding-up
petition is a difficult thing and the Court consider the issue as to whether
the Company is a going concern, the future prospects and the interests of the
many other stake holders too. Despite the complications, the High Court has
been exercising the power to wind-up the Company very cautiously. However, if
the High Court entertains the petition to wind-up the Company from the Share
holders very freely, then, the provisions providing for revival and
rehabilitation and also the powers conferred on the Company Law Board to
address the issues of oppression and mismanagement may not be justified at all.
As such, in a very cautious approach, when the shareholders raise the issue of
oppression and mismanagement by the majority before the Company Court, the Company
Court may ask the shareholders to avail the alternative remedy of approaching
the Company Law Board to put an end to matters complained of or to regulate the
company affairs. As such, it will be difficult for the minority shareholders to
convince the Company Court and get the redressel for oppression and
mismanagement in the Company. This is the factual position according to me and
my view. High Court, infact, has the track-record of providing speedy and
effective remedies in corporate disputes. Due to technicalities as pointed-out,
the minority shareholders may be asked to approach the Company Law Board very
often when they raise the issue of oppression and mismanagement before the High
Court.
Approaching Civil Court:
According to me, there is no bar
on the shareholders of a Company in approaching the Civil Court seeking
redressel at times. There is an attempt to make a specific provision to bar the
jurisdiction of the Civil Court to entertain the corporate disputes in the
proposed new Companies Act. However, as the law stands today, the shareholders
can approach the Civil Court asking for a remedy against the management or the
majority in the Company. The problem with approaching the Civil Court is that
it is time consuming and technicalities to be followed at any cost. Again, the
Civil Court may lack the expertise in dealing with the corporate disputes and
there is a possibility of applying the provisions of the Companies Act, 1956
strictly and the result can be disastrous at times. As such, though there is no
bar in approaching the Civil Court, the shareholders normally hesitate to
approach the Civil Court and even if they approach Civil Court, at times, they
may simultaneously approach the Company Law Board under section 397/398 of the
Companies Act, 1956. As such, the minority may not get immediate and effective
relief by approaching the Civil Court.
Approaching Company Law Board:
If the minority shareholders are
qualified to approach the Company Law Board under section 399 of the Companies
Act, 1956, they often approach the Company Law Board for oppression and
mismanagement. The Company Law Board is provided with enormous powers to put an
end to the matters complained of and to regulate the affairs of the Company. It
is true that many may feel that the relief before the Board is not speedy and
effective. It is also true that technicalities overtake the subjective scrutiny
before the Board at times. There are complications and those are inevitable and
to be addressed by the Board with the co-operation from the professionals and
parties concerned. Based on the developments with the interpretation of
Constitutional Courts, technicalities are now ignored under section 397/398 of
the Companies Act, 1956. Again, even the Board gives lot of preference to
ensure that the company functions smoothly if it is a going concern. Despite
the complications and limitations, the only effective legal recourse available
to the minority shareholders against oppression and mismanagement now is to
approach the Company Law Board under section 397/398 of the Companies Act,
1956. I do strongly feel that the Company Law Board can put an end to matters
complained of and can regulate the affairs of the Company. The issues
pertaining to execution of the orders of the Company Law Board and the issues
of contempt are to be looked into and to be addressed in the proposed new
Companies Act. If the minority shareholders failed to get the protection from
the Board and if the proceeding gets delayed without protection, then, the
minority shareholders can never get justice and they may be forced to
compromise with their rights and they may forced to agree for a settlement. I
most of the cases, the minority shareholders leave the company by opting to
sell their shares to the majority.
Approaching Arbitral Tribunal:
The issue as to whether the
jurisdiction of the Company Law Board under section 397/398 of the Companies
Act, 1956 be ousted upon showing some Arbitration Clause is a complicated issue
to deal with. According to me, the issue of opting to approach the Arbitral
Tribunal to settle the disputes between or among the shareholders is a
complicated thing. It depends upon the facts and circumstances of the case. If
all the stake-holders are agreed to get their disputes settled to a mutually
acceptable Arbitration, then, there can not be any problem. However, there can
be argument that the Arbitrator may not effectively consider the issue of
public interest if he is provided with the powers of the Company Law Board
under section 3976/398 of the Companies Act, 1956. The issue as to whether
approaching an Arbitrator or Arbitral Tribunal is effective or not, will depend
upon the facts and circumstances of each case. No hard and fast rule can be
laid in this regard.
In view of laying emphasis on
majority rule and in view of considering the functioning of the Company when
the Company is a going concern, the minority shareholders should convince the
appropriate and chosen forum as to the importance of their interest and should
get the relief. There is also a criticism that the most comfortable way of
stealing huge money is through relying on the technicalities in the provisions
of the Companies Act, 1956 and is through misusing the settled principles of
Company Law.
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
