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
A petition under section 397/398
of the Companies Act, 1956 is to be carefully handled by the Petitioner who
approaches the Company Law Board, the majority in the Company against whom an
allegation of Oppression and Mismanagement is made and also by the adjudicatory
forum or the Company Law Board. The presentation of case is
difficult and also deciding the case will also be difficult at times.
There are minority shareholders
who say that their rights and interests are not being protected properly
despite the guarantee of their rights on paper under the provisions of the
Companies Act, 1956. On the same footing, there are majority who feels that
section 397/398 of the Companies Act, 1956 is being misused and the majority in
the Company is being troubled unnecessary abusing the process and they are not
able to concentrate on their regular affairs.
We do see filing interim
applications in the main Company Petition under section 397/398 of the
Companies Act, 1956 requesting the Company Law Board to take-up the issue of
maintainability as preliminary issue and consequently asking for dismissal of
the Company Petition. I do believe that the application seeking maintainability
of Company Petition are rarely entertained or allowed practically by the Board
and there can be good justification for that also. Instead of taking up the
issue of maintainability, the Company Law Board may ask the parties to file
their papers like reply with documentary proof and the Company Petition can be
decided finally and after final hearing as per the regular procedure.
The issue of maintainability of a
Company Petition under section 397/398 of the Companies Act, 1956 is normally
raised on the ground that the petitioners do not qualify to present the
Petition under section 399 and at times, procedural irregularities can also be
pointed-out while asking for dismissal of the Company Petition prima facie.
Facts of the Case:
1. A closely held Private Company
is incorporated in the year 1992 having family members as the shareholders. The
head of the family and his two sons are shown as Managing Director and Joint
Managing Directors respectively in the Articles of Association.
2. The Company was making profits
continuously. The head of the family and the Managing Director held substantial
number of shares in his name.
3. The properties belonging to
the family were partitioned duly during the life time of the Managing Director itself
and it is in the year 2002.
4. The Managing Director and head
of the family has held substantial number of shares in his name even after the
Partition and he is at liberty to dispose the shares as per his wish and will.
5. The head of the family and the
Managing Director has executed a will bequeathing his shareholding to one of
his son initially during the year 2005 and the reference for him is
"A" while the other son is referred to herein as "B"
6. The head of the family has
revoked his ‘will’ executed during the year 2005 infavour of "A" and
executes another will in the year 2006 and it is duly probated. In the second
‘will’ executed in the year 2006, the head of the family bequeaths his
shareholding in favour of "B".
7. "A" has the knowledge
of the ‘will’ executed by his father in favour of "B" and he remains
silent and “B” was not questioned.
8. The head of the family and the
managing director has expired in the year 2008 and after the expiry;
"B" has called for a Board meeting for transmission of shares in his
favour pursuant to the “will” executed in his favour during the year 2006.
9. "A" files a Civil
Suit in the year 2008 itself seeking for a declaration that the Will executed
by his father in the year 2006 in favour of "B" is null and void. No
orders were obtained from the Civil Court and the case is simply pending and
even "A" is not attending the court regularly.
10. Now, "B" becomes
majority in the Company having 89% shareholding and "A" is having
only 11% shareholding.
11. The Company is being
effectively maintained by "B" as he is the majority and the Company
maintains documents and also accounts without any concealment of facts
whatsoever. The Company sends the notice of Board to the "A" as he is
also a director.
12. "A" never attends
the Board meetings; however, he is jealous of "B" as he is holding
majority shareholding in the Company and wanted to trouble him.
13. Now, "B" files a
petition before the Company Law Board leveling vague allegations and alleging
oppression and mismanagement. No specifics have been given by "A" in
his Petition and it is prima facie is clear that there is no substantial
allegation of Oppression and Mismanagement and that to having continuing
nature.
Discussion:
The facts of the case are very
clear that the majority is being troubled by minority by leveling some baseless
allegations and files a Petition under section 397/398 of the Act. Now,
"B" is scared of the proceedings as he has not done anything illegal
and he wants the dismissal of the Petition prima facie. It is an interesting
issue. There can be two arguments on the issue. One is that the "B"
should not suffer a proceeding under section 397/398 of the Act where there is
no case prima facie. The second argument is that the issue as to whether there
is prima facie case exists or not, is to be decided after the full proceeding
and can be decided only during the final hearing and it may take few years
practically as we see.
Conclusion:
It is really very difficult to
conclude the issue as to whether an application seeking dismissal of the main
Company Petition under section 397/398 be entertained on the ground that the
essentials under the section are not made-out prima facie.
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
