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397/398 – The Board's role in corporate law – Law of Indian companies

As we all know, Article 397/398 of Companies Act, 1956 deals with the oppression and mismanagement and the protection of the minority against the majority. The lawmakers could not expect that the situation will come when a majority are harassed or oppressed by the minority. Sections 397/398 and other related companies Act 1956 aims to provide relief to minority shareholders in the minority against the majority are oppressed or property of the company is mismanaged. Sections 397/398 of the Companies Act, 1956 deals with the very important issue affecting the world of business. A minority shareholder who has invested so much in society can not ignore the acts of the majority to oppress or mismanagement of corporate assets. At the same time, developers or the majority required protection against the minority when they resort to illegal and try to oppress the majority.

I wrote numerous articles on some issues the question of oppression and mismanagement, and the relief provided for in Article 397 / 398 Companies Act of 1956. I just want to remind the new complications in the treatment of a proceeding under Article 397/398 of the Companies Act, 1956 by the Council on company law today and the National Company Law Tribunal in the future if the Tribunal is established. Aside from very little, I do not think that the complications under section 397/398 will disappear with the creation of the National Society of Law Tribunal, and must be considered like how the national society of law Tribunal deals with issues such as liquidation, merger, oppression and mismanagement and related issues. It is a complex legal liability of corporations Council to ensure that the purpose of section 397/398 is fulfilled when a petition is submitted to oppression and mismanagement fired. I have been privileged to observe so many procedures before the Committee on company law and heard the majority shareholders in the company as to how they are harassed by the minority and heard from the minority of society as to how the majority had embezzled company funds and how they could do nothing to recover their debts or to obtain their rights protected.

First, when shareholders to petition the Company Law Board under Section 397/398 of the Companies Act, 1956, will require much time to understand the case and it Therefore, we see very often that a jury of a successful intermediary to give freedom to the other party to an application for the order be vacant when the Council is satisfied that there is a prima facie case. Read hundreds and thousands of documents will be a difficult task for the Commission on company law unless there are two competent advice to stick to their point and help the Council to achieve conclusion. The techniques, complications, attitudes, transfer chairs etc. contribute a delay in obtaining applications under section 397/398 eliminated despite the fact that the constitution of the special tribunal as the Company Law Board should address more rapidly compared to traditional courts. Some cases under section 397/398 will be very complicated to manage and, ultimately, an exit option may be offered to group on the assessment made by the independent auditors. There is a problem with the option also exists where the Committee concluded that is impossible to guarantee that both groups in an enterprise seamlessly. Many applications under Article 397 / 398 are filed against limited liability companies or limited companies public and listed companies are regulated in common for the regulatory SEBI, the listing agreement and the plethora of other terms and conditions of participation. Many limited liability companies will not even keep books of account properly and it tends to be under evaluation, valuation and the concealment of certain operations to evade taxes substantially. As real transactions of the Company are not recorded in many cases it will be difficult claiming the option exists. This is Therefore, the applicants before the Commission on Company Law under Article 397/398 of the Companies Act, 1956 for commands and press Remedies of the Company. Again, we all know the practical difficulties in obtaining court orders executed. Even orders of the High Court are sometimes floated leaving only one option to move for contempt, and many litigants know the gaps in the contempt proceedings. Of Many reforms are indeed necessary to make the law really works.

I just want to give a brief two cases I have personally seen and heard concerned.

Promoter is thrown-out:

I saw one case where a developer is operating 100% cast-out society. If I speak, the promoter is a technocrat and has created a business. While he was seeking investors an individual has approached him to bring in money and also raise significant debt and equity for business expansion. Accordingly, a Memorandum of Understanding stock and agreements are concluded between the Company and the outsider and the outsider has not been allocated shares, but was made as a director under the articles supplementary Corporation. The stranger who promised to attract investment both in society did nothing as agreed in the MOU and purchase agreements Equity issues and when the same promoter, the alien has filed forms with fictitious ROC as if there were meetings council and decisions were taken for all mortgages of real society and that if a decision was taken to additional allowance actions. With the filing of fictitious forms with the ROC, the developer could do nothing for the company and he could not concentrate on expansion Society and had to run from pillar to post. The promoter had to approach the Company Law Board for the fictitious charges set aside and the case is ongoing for months now, and fortunately, it can quickly get eliminated. Time is very valuable for businesses and issues are high in many cases. As such, all cases of Article 397/398 is different and saw on a different footing. Some cases may be eliminated very quickly, and even daily if possible, and some cases tend to spend months and years.

Apparent mismanagement:

In another case, a private company Private consists of members of the family as its shareholders. A Mr.A place about 50% participation, while his brother and his group held the remaining 50% in the Company. Mr.A was not concentrating on the affairs of the Company to believe that its rights and interests are attached to the mandatory regulation of companies to follow. Mr.A lived abroad and had to travel to abroad very often because of health problems. Suddenly, Mr.A has found that high-value assets of the Company is sold to a Price to throw third. Mr.A had challenged the sale transaction, but the third party that purchased the property began even development activity as there was no restriction of the Board or Mr.A could not convince the Council to obtain a restraint order as injunction. The case pending before the Commission for years and the majority group committed competent lawyers and expensive, and they keep filing applications and now is really difficult for the Council Honourable Society of Law read the newspapers, find-all procedure and the transmission of final orders in the matter. Mr.A is a clear case to prove that the property is sold illegally and in violation of the statutes and provisions of the law, but he still could not get his rights guaranteed and hoping that his rights will be preserved and protected when the petition under Section 397/398 Societies is finally settled.

Complications

Now I just want the starting list some important issues and complications under section 397/398 of the Companies Act, 1956 as under:

1. Nature of compensation under sections 397/398. Basically, the provisions aimed at prevent the continued oppression and mismanagement by the majority against the minority. But which remedies the harm done and the skills of company law under Section 397/398 read with Article 402 and other provisions are interesting to know and dealwith.
2. Who can all contact the Tribunal under Article 397 / 398?
3. Can approach the majority of the Court under sections 397 / 398?
4. How to know the method in question the maintainability of applications.
5. How to deal with disputes relating to the membership?
6. Prerequisites for the maintenance of an application under section?
7. How to interpret the oppression in the world "?
8. What is generally oppression?
9. How to interpret the "mismanagement"?
10. What constitutes usually "mismanagement"?
11. If mere irregularity or non-compliance with the Act be regarded as oppression and mismanagement?
12. How to interpret "public interest" under the section?
13. Need to provide complete information in an application under sections 397/398.
14. If the petition is maintainable in the composite section?
15. If events subsequent deposition the application be considered?
16. Principles of sub judice and Res res judicata?
17. That the rules under Code of Civil Procedure shall apply to an application under section 397/398.
18. Is it correct to say that the Tribunal can not decide what the facts issue?
19. Interpretation of the issue of proceedings against legal representatives or representatives questioned legalities of the applicant.
20. That the affairs of the subsidiary to be questioned by members of the holding company through an intermediary?
21. Difference between the procedure laid down in Article 433 and Article 397 / 398?
22. Whether the arbitration clause may eliminate the Tribunal's jurisdiction under section?
23. Applying the statute of limitations?
24. The proper approach while entertaining an application under section.
25. The proper approach under the section against companies s.25.
26. Essentials for considered when entertaining the application.
27. The role of precedents while entertaining an application under section 397/398.
28. Tackling the issue of consent under section 399.
29. Tackling the issue of membership and the prima facie case.
30. Powers enumerated in Article 402 and need to provide that section 402 article itself is working over 397/398 when dealing with the powers of the Company Law Board.

Note: I have just given the complications under section 397/398 of the Companies Act, 1956 again and the opinions expressed are my personal.

About the Author

V.Durga Rao, Advocate, Madras High Court.

Email: vdrao_attorney@yahoo.co.in

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