PRESENTATION

ON
NCLT
OPPRESSION AND
MISMANAGEMENT
By Mahesh Athavale
[email protected]
Introduction
A company functions through the instrumentality of the Board of
Directors who is guided by the wishes of the majority subject to the
welfare of the company as a whole.
The general principle of company law is that every member holding
shares of a particular class will have equal rights. In case of
difference amongst the members, the issue is decided by vote of the
majority.
It has therefore become a Cardinal Rule of Company Law that
prima facie, a majority of members of a company are entitled to
exercise the powers of the company and generally control its affairs.
 As a general rule, it has been well settled that the actions and
decisions of the majority in a company as long as they are within
the framework of law and the articles of the company, are binding
on the shareholders of the company. [MacDougal v. Gardiner
(1875) 1Ch D 13 (C.A)].
The basic principle of non-interference with the internal
management of company by the court is laid down in a celebrated
case of Foss v. Harbottle 67 E.R. (189) (1843).
In the corporate world, whether it be United Kingdom or India or
Japan, number of instances have been observed where majority (i.e.
a group of shareholders in management) are not conducting affairs
of the company properly and impartially.
 The public concern to look after and safeguard the interest of the
body of shareholders who are not in management or the protection
of a few dissident shareholders can be largely termed as 'minority
protection'.

Of late, there is an increasing awareness about this aspect and both

the legislature and judiciary are conscious to improve upon the lot
of such shareholders and are keen to champion their cause.
Exceptions To Rule Of Majority:

Rule in Foss v. Harbottle is not absolute but is subject to certain

exceptions.
One of the exceptions to the majority rule in Foss v. Harbottle is the
right of the oppressed minority to get relief against the wrongful
conduct of the majority.
This is one of the statutory protections to the investors and is
provided for in sections 397-402 of the Companies Act, 1956. Sec
241- 244 of CA 2013 ,CHAPTER XVI
 SECTION 241 HAS CLUBBED 397 & 398 OF OLD ACT

SECTION 242 IS ABOUT POWERS OF NCLT

SECTION 243 IS ABOUT CONSEQUENSES OF TERMOINATION OR

MODIFICATION OF AGREEMENTS

SECTION 244 IS ABIOUT ELIGIBILITY OF MEMBERS TO FILE PETITION

Section 397: Application for relief in
cases of oppression
Section 397 provides that any member of a company who complains
that the affairs of the company are being conducted in a manner
prejudicial to public interest or in a manner oppressive to any
member(s) (including any one or more of themselves) may make an
application to the Company Law Board/Tribunal by way of petition for
relief.
Minority can approach tribunal if the affairs of the company have been
or are being conducted in an oppressive manner. Thus past concluded
acts can be a ground for relief.
 Section 245 : This is a new concept.
Class action by member(s) , depositor(s) or any class of them.
If company acts ultra-virus to MOA/AOA ;
If terms of MOA/AOA are violated ;
If amendments are sought to MOA/AOA by misleading members;
If company commits an act contrary to the provisions of law or
contrary to provisions of members resolution.
Against Auditors
Requirements to be satisfied for
seeking relief under the section
That the affairs of the company are being conducted: (a) in a
manner prejudicial to public interest; or (b) oppressive to any
members.
That the fact justified the compulsory winding up order on the
ground that it is just and equitable that the company should
be wound up.
That to wind up the company would unfairly prejudice the
petitioners [Ramji Lal Baiswala v. Britain Cable Ltd., (1964) 14
Raj. 135].
This subsection 242(1 ) (b) is yet to be made effective.
Explanation of statements
Affairs of the company ..are being conducted
The words the affairs of the There must be continuous acts on
company are not limited to the part of the majority
business or trade matters, but shareholders continuing up to the
encompass capital structure, date of the petition showing that
dividend policy, voting rights, the affairs of the company were
consideration of takeover offers being conducted in a manner
and indeed, all matters which may oppressive to some part of the
come before the Tribunal for members. So isolated acts or past
consideration. acts which have come to an end
could not have been challenged
under section 397. But under new
provisions it is possible.
in a manner prejudicial to public .or in a manner oppressive to
interest.. any member or members
The term public interest as The expression in a manner
pointed out in N.N. Murty v. oppressive to any member or
Industrial Development members defies exact
Corporation of Orissa Ltd. is an definition.
elusive abstraction. It is said to
mean a general social welfare
or regard for social good and to Oppression
predicate interest of the general The term oppression has hot
public in matters where a been defined in the Act.
regard for the social good is of
the first moment.
 What is Oppression?
In Shanti Prasad v. Kalinga Tubes, (1965) 35 Com Cases, it is was
observed that it is not enough to show that there is just and
equitable cause for winding up the company though that must be
shown as a preliminary to the application of section 397. It must
further be shown that the conduct of the majority shareholders was
oppressive to the minority as members.
A conduct which lacks in probity, conduct which is unfair to and
which causes prejudice to the petitioner in the exercise of his legal
and proprietary rights as a shareholder must be shown to exist.
Needle Industries (India) Ltd. v. Needle Industries Newey (India)
Holding Ltd., (1981) 51 Com Cases 743 (at 782) : AIR 1981 SC 1298.
 Mere existence of concerns about future breaches of fiduciary duty
by certain directors cannot provide a present basis for prevention of
future unfair conduct. There must be some proposed course of act
or omission by or on behalf of the company.[Astec (BSR) Plc Re
(1998) 2 BCLC 556 (ChD)].
 Competing business
Merely because the majority are carrying on a competing business
does not necessarily mean that the minority are being oppressed
in relation to their own company, unless the majority are diverting
corporate opportunities away from the company or are using the
companys facilities for the purposes of their competing business
without proper payment (see, for example, Re Cumana Ltd., 1986
BCLC 430).
An attempt to force new and more risky objects upon an unwilling
minority may in circumstances amount to oppression. This was
held in Re. Hindustan Co-operative Insurance Society Ltd., AIR.
1961 Cal. 443.
 Irregular Acts
Mere illegal, invalid or irregular acts by themselves, unless they
are oppressive to any shareholder or prejudicial to the interests of
the company or to public interest, cannot support a petition.
Sheth Mohanlal Ganpatram v. Shri Sayaji Jubilee Cotton and Jute
Mills Co.Ltd. (1964) 54 Com Cases 777 (Guj); Maharashtra Power
Development Corpn. Ltd. v. Dabol Power Co., (2003) 56 CCA 263.
 Provisions of the Act as to the length of notice being only directory
and not mandatory, short notice is not an act of oppressive nature
unless it is intended to be adopted as a strategy to ride roughshod
over the interest of the lesser number of shareholders. Shantidevi
Pratapshingh Gaekwad v. Sangramsingh P. Gaekwad, (1996) 1 Comp
LJ 72 (Guj).
Suppressing the notice to some of the members is an act of
oppression. Farhat Sheikh v. Esemen Metalo Chemicals P.Ltd.,
(1996) 87 Com Cases 290 (Company Law Board-New Delhi).
 Continuing Act
Oppression must be a continuous process. Isolated acts of oppression will
not give rise to an action under Section 397 of the Act. [Held in Shanti
Prasad Jain and other cases]. Now perhaps not relevant
Words used in sec. 241 are the affairs of the company have been or are being conducted in a manner prejudicial

..
A single act of letting out companys premises was held to be not in the
nature of continuing oppression or mismanagement, [Power Tools and
Appliances Co.Ltd. v. Jaladhar Chakraborty, (1991-92) 96 CWN 313 (Cal.)].
Now perhaps not relevant

In the case of an oppressive act, though it may itself be not continuous, if

the circumstances indicate that the effect is continuous, the Court will
interfere. [Sindri Iron Foundry (Private) Ltd., (1964) 34 Com Cases 510].
A mere apprehension that the minority shareholders will be
oppressed in future is not sufficient to invoke this section.
[Nagavarapu Krishna Prasad v. Andhra Bank Ltd., (1983) 53 Com
Cases 73 (at 98) (AP)].

Tea Brokers P.Ltd. v. Hemendra Prosad Barooah, (1998) 5 Comp LJ 463

(Cal), Division Bench of the Calcutta High Court observed (at para
46).It will ordinarily be an act of oppression on the members if he is
deprived of a privilege and right. Such an act may be even a single act
done on one particular occasion, if the effect of such an act will be of
a continuing nature and the member concerned is deprived of his
rights and privileges for all time to come in future.
 Additional issue
Additional issue of shares resolved and made at the Board meeting
of which notice not given to a director was held as oppressive and
set aside. Dileep Makhija v. Arun Mittal (2003) 47 SCL 241: (2004)
CLC 209.
If additional directors are appointed to gain majority control of the
Board without any bona fide need or any interest of the company, it
can be treated as an oppressive exercise. [Kshounish Chowdhury v.
Kero Rajendra Monolithics Ltd. (2002) 1 Com LJ 552].
Deadlock in management : Where each side is equally strong, and
one is unable to oppress the other, there may be a deadlock but not
oppression. It is not a case for winding up. Gnanasambandam
(C.P.) v. Tamilnad Transports (Coimbatore) (P.) Ltd., (1971) 41 Com
Cases 26 (Mad).
 to wind up the company would
unfairly prejudice such member or
members
It is a condition precedent for claiming relief under section 397 that
even though the facts would justify the winding up of the company, it
would be unfairly prejudicial to the members to wind up the
company. The onus is on the applicants to show that it would be so.
Winding up will be prejudicial where, for example, the members
would be able to get only the break-up value of the shares. This part
is yet to be made effective.
Oppression may result from not acting
as much as by acting.
Unfairly prejudicial
As laid down in Saul D. Harrison & Sons Plc., Re. (1995) 1 BCLC, some of the
salient check points in relation to unfairly prejudicial are:
i. The conduct must be both prejudicial (in the sense of causing prejudice or
harm to the relevant interest) and also unfairly so: conduct may be unfair
without being prejudicial or prejudicial without being unfair, and it is not
sufficient if the conduct satisfies only one of these tests.
ii. In construing the word unfairly in this context, it will be necessary to
take into account not only the legal rights of the petitioner, but also
whether there are any equitable considerations such as the petitioners
legitimate expectations to be weighed in the balance.
iii. In order to establish unfairness it is clearly not enough to
show that some managerial decision may have prejudiced the
petitioners interest.
iv. Though in general, members of a company have no
legitimate expectations going beyond the legal rights conferred
on them by the constitution of the company, additional
legitimate expectations may be superimposed in certain
circumstances.
but otherwise facts would justify the
making of a winding up order on just and
equitable ground.
In order to make out a case under section 397 it is essential to show
that there exist such facts as would justify the winding up of the
company on just and equitable grounds, under section 433(f) of the
Companies Act, 1956.
Instance of this include : Loss or failure of substratum; Fraud;
Illegality of objects; Directors misconduct; Improper motive;
Justifiable lack of confidence; Expulsion from office; and Exclusion
from participation in management
 C. Acts / Circumstances which were not
considered to be Oppressive
SL. NO. NAME OF THE CASE ACTS NOT OF OPPRESSION
1. Maharani Lalita Rajyalakshmi v. Denial of right of inspection or other rights of
Indian Motor Co.,(1962) 32 shareholder or failure to comply with
Com. Cases 207 Cal formalities required in the matter of giving
notice of general meeting or refusal to declare
more than moderate rate of dividend even if
the profits earned could justify a higher rate of
dividend may not amount to oppression.
SL. NO. NAME OF THE CASE ACTS NOT OF OPPRESSION
2. Gyanasambandam v. Tamilnadu Where each side is equally strong and one is
Transport (Koimbatur) P. Ltd. unable to oppress the other there may be
deadlock and not oppression.
3. Asoka Betelnut Co. P. Ltd. v. M.K. Phenomenon of continuous losses cannot be
Chandrakant, (1977) 88 Com regarded by itself as an oppression of any
Cases 274 shareholder.

4. Chennabasappa Kothambari v. Merely because the company is suffering

Mutiplast, (1985) 57 Com Cases losses, the drawing of salary by directors is
541 not an oppression in itself.
5. V.M. Rao v. Rajeshwari Where no private agreement or
Ramkrishnan, (1987) 61 Com understanding among the members of the
Cases 20, 66 (Niad Dr. private company as to appointment of
directors is provable, the fact that the
majority shareholders appointed all directors
does not amount to oppression.
SL. NO. NAME OF THE CASE ACTS NOT OF OPPRESSION
6. Cumana Ltd case, (1986 Merely because the majority are carrying on a
BCLC 430) competing business does not necessarily mean that the
minority are being oppressed in relation to their own
company unless the majority are diverting corporate
opportunities away from the company or are using the
companys facilities for the purpose of their competing
business without proper payment.
7. Ruther Ford case. Commercial mis-judgements will not amount to
(1994) BCL 876, 879 oppression even though it may have an adverse effect
on the price of the petitioners share.
8. Kalinga Tubes Ltd. v. Different groups of shareholders losing confidence due
Shanti Prasad Jain, (1964) to non-distribution of new shares to existing
1 Comp LJ 117 DB-Orissa shareholders was not held to be oppression.
SL. NO. NAME OF THE CASE ACTS NOT OF OPPRESSION

9. Shantidevi Short notice is not an act of oppressive it is

Pratapsingh Gaikwad intended to be adopted as a strategy to
v. Sangramsingh P. roughshod over the interest of the lesser
Gaekwad, (1996) 1 number of the shareholders.
Comp LJ 72 (Guj.)
10. Thomas Vettom v. Failure to declare dividend and building up
Kuttanad Rubber Co. of Reserves does not amount to
Ltd,(1992) 74 Com oppression.
Cases 392 (Ker-DB)
ACTS WHICH WERE HELD TO BE OPPRESSIVE
SL. NO. NAME OF THE CASE ACTS HELD TO BE OPPRESSIVE

1. Hindustan Co- An attempt to force new and more risky

operative Insurance objects upon an unwilling minority may in
Society case circumstances amount to oppression

2. Mrs. Gajrabai vs. An unreasonable refusal to accept the transfer

Patni transport Co. or transmission of shares had been held
sufficient to warrant an order under Section
397.
SL. NO. NAME OF THE CASE ACTS HELD TO BE OPPRESSIVE

3. Mohanlal Chandumal vs. Denial to shareholder of his rights to vote and receive
Punjab Co. Ltd. dividend amounted to oppression.

4 Janabai Printing Private Secret profits made by the directors of the company
Limited vs. Nadar Press by purchasing machinery.

5. Rajiv Khandelwal vs. Appointment of a director at an EOGM of which no

Amigo Multifilm notice was offered to the minority.
SL. NO. NAME OF THE CASE ACTS HELD TO BE OPPRESSIVE

6. Punit Goel v/s No notice of the Board meeting in which the

Khelgaon Resorts alleged allotment was made , No sufficient
Limited. disclosures about the allotment which
reduced the majority to minority, -the
allotment was invalid.

7 Jadabpore Tea Co. Power to issue further share Capital for

Ltd. v/s. Bengal raising funds of the Company was exercised
Dooars National Tea by the Directors not for the benefit of the
Co. Ltd. (Cal) (1984) Company but simply and solely for their
55 Comp. Cases 160 personal aggrandizement and to the
(167, 168, 170) Pg. detriment of the Company.
512 New CLD
SL. NO. NAME OF THE CASE ACTS HELD TO BE OPPRESSIVE

8 Albert David Ltd. case Shareholders right to appoint director infringed.

9 Farhat Sheikh vs. Esemen Suppressing the notice to some of the members is an
Mettalo P. Ltd. act of oppression.

10 H.R. Harmer Ltd. case Persistent disregard by a Managing director of the

provisions of the companys articles of association or
of the powers and functions of the Board of directors
and arrogation of the boards powers by him to the
exclusion of the other directors is regarded as
oppression.
MISMANAGEMENT
 Section 398 ( Now 241 ) provides that where members of a company
complain that the affairs of the company are being conducted in a
manner prejudicial to public interest or to the interests of the
company, or that a material change has occurred in the management
or control of the company, whether due to change in the constitution
of the board of directors, or in the ownership of the shares of the
company, or in any other manner whatsoever, and that by reason of
such change it is likely that the affairs of the company will be
conducted in that manner, they many apply to the court for an order
for bringing to an end the matters complained of or apprehended.

Two facets. The first is the positive acts done by the management
which result in prejudice being caused to the company; secondly, even
where no action at all is taken by the management, such non-action
results in prejudice being caused to the company.
 Meaning of Mismanagement
Some of these instances which can be termed as mismanagement are:
1. Preventing Directors From Functioning;
2. Absence Of Companys Records Causing Prejudice To Companys
Business;
3. Sale Of Assets At A Low Price And Without Compliance With The Act
4. Violation Of Statutory Provisions;
5. Violation Of Provisions Of Memorandum And Articles Of The
Company;
6. Erosion Of Companies Substratum Due To Irregularities In Conduct
Of Affairs;
7. Misuse Of Funds Etc.
 Following acts have been held
constituting as mismanagement of affairs
so as to attract preventive jurisdiction of
CLB [NOW RELEVANT FOR NCLT]

Transferring shares without first offering them to the existing members in

accordance with their rights under the articles;
Holding meetings without sending notice to members;
Issue of shares for a consideration other than cash not represented by
corresponding assets; and
Burdening the company with additional rental by shifting the companys
office. [Akbarali A. Kalvert v. Konkan Chemicals P.Ltd., (1997) 88 Com Cases
245 (CLB)].
 Removal of Director

Removal of existing directors and appointment of new directors

cannot be challenged as mismanagement unless the new directors
misconduct the affairs of the company and work to the prejudice of
the company. [Siddaramappa Bapurao Patil v. Ratna Cements
(Yadwad) Ltd. 1991 70 Com Cases 27 (Kar).]
 Bona fide decision

Directors bona fide decision not to declare dividend and to

accumulate profits into reserves is not mismanagement. [Thomas
Vettom (V.J.) v. Kutanad Rubber Co.Ltd. (1984) 56 Com Cases 284].

No case of oppression / mismanagement is made out if alleged sale

of land was made out with authority of general body in EGM and
the sale price was already approved by Board. [Shri Kishan
Khariwal v. Gangasagar Industries Ltd. (2004) CLC 241 (CLB, New
Delhi)].
 Full particulars

In a charge of mismanagement /improper conduct full particulars of

the act must be set out in the pleading otherwise charges shall be
ignored and not relied upon.

The allegation that the Boards resolution for appointment of MD

was of fraudulent nature was not upheld as no material was
furnished in support of the allegation of fraud. [Ramkumar Gupta v.
Atal Udyog Pvt.Ltd. (2003) 3 Com LJ 266, CLB-Cal].
 Acts Constituting/Circumstances which
Were held to be of Mismanagement
SL. NO. NAME OF THE CASE ACTS OF MISMANAGEMENT
1. Sishu Ranjan Dutta v. Continuation in office after expiry of term
Bholanath Paper House of Managing director held to be
Ltd.,(1983) 53 Com Cases 883, mismanagement.
900, 904 (Cal.)
2. Suresh Kumar Sanghi v. In fighting among the directors resulting in
Supreme Motor Ltd.,(1983) 54 serious prejudice to the company constitutes
Comp Cases 235 (Del) mismanagement.

3. Ador-Samia Ltd. v. Indocam Where a set of properly appointed directors

Engineering systems were not permitted to join or function as
Ltd.,(2000) 100 Comp Cas 370 director, it was an act of mismanagement
SL. NO. NAME OF THE CASE ACTS OF MISMANAGEMENT
4. Chander Krishan Gupta v. Where the directors were not taking active part in
Pannalal Giridharilal P. Ltd., the affairs of the company, the management failed
(1984) 55 Comp Cases 701 in protecting the companys records and the
(Del) business was also seriously prejudiced because of
the infighting among the directors, it was held that
these acts are considered as mismanagement.

5. Akbarali Kalvert v. Kokan Transferring shares without offering them to the

Chemicals P. Ltd., (1994) 3 existing members, holding meetings without
Comp LJ 102 sending notice to members and burdening the
company with additional rent by shifting
companys office have been held acts of
mismanagement.
SL. NO. NAME OF THE CASE ACTS OF MISMANAGEMENT
6. S. M. Ramakrishna Rao Violation of the conditions of companys
v. Bangalore Race Club memorandum by those who are in charge of
Ltd., (1970) 40 Com Cas companys management may amount to
674 mismanagement
7. Prabhudayal Chitlangiyar Action on the part of directors in which affects the
v. Trinity Combine interest of family members can be held act of
Associates P. Ltd., (1999) mismanagement
34 CLA 344

8. Amalkumar Mukharjee v. Forgeries and defalcation in the assets and funds

Clarion Advertising amounts to mismanagement and misapplication.
Service Ltd., (1980) Tax
LR 2043
Acts not Constituting Mismanagement
SL. NO. NAME OF THE CASE ACTS NOT OF MISMANAGEMENT
1. Dr. Subastian v. City Mere removal of a person from the office of
Hospital P. Ltd,(1985) secretary or medical specialist by a majority
57 Comp Cas 453 decision of board is not a case of
mismanagement. It must be shown that the
removal had prejudicially affected
companys interest or public interest.
2. Suresh Chandra Where directors of a company in financial
Marwaha v. Lauls P. difficulties arranged with the companys
Ltd,(1978) 48 Com creditors that the creditors may become
Cases 110, 118 (P&H- shareholders and directors instead of being
DB) creditors this was not an act of
mismanagement.
SL. NO. NAME OF THE CASE ACTS NOT OF MISMANAGEMENT
3. Thomas Vettom v. Directors bona fide decision not to declare
Kuttanad Rubber Co. dividend and to accumulate available profits
Ltd.,(1984) 56 Com into reserves is not mismanagement
Cases 284 (Ker. DB)
4. Thakur Paper Mills Ltd. Change in control and management of the
case company and the appointment of new
(1975) Tax LR 1656 directors which is not ultra vires the company
(Pat.) is not an act of mismanagement.
5. Jaladar Chakravarti v. The single act of letting of premises of
Power Tools and company is not an act of mismanagement
Appliances Co. Ltd. unless it is proved that properties of company
(1994) 79 Com Cases have been let out at lower rents.
505, 527-28 (Cal.)
 Difference between Oppression and
Mismanagement
Even though sections 397 and 398 serve a common purpose of protecting the interest
of the aggrieved parties, the deal with different aspects - oppression and
mismanagement.
The phrase prejudicial to public interest occurs both in section 397 and in section
398. But in order to succeed under section 397 it is also necessary to make out a
ground for the winding up of the company under the just and equitable clause,
whereas there is no such requirement under section 398.
These two terms differ in the following manner:
i. Relief against oppression runs in favor of individual member of the company
whereas relief against mismanagement is granted to the company as a whole.
ii. In order to grant relief against oppression, it is necessary for the CLB to ensure that
there are facts to justify making of a winding up order but in case of
mismanagement it is not so necessary. It is enough if the affairs of the company are
conducted in a manner prejudicial to the interest of the company or the public
interest.
iii. To seek relief against mismanagement the CLB may take into consideration outside
interest affected by the corporate operations.
 Applicability of Statutes
Matters which form subject matter of petition under Section 397 and 398 cannot
be the subject matter of the arbitration. Depends on the facts.
The CLB will not grant stay of proceeding merely because there is pending petition
in the court impeaching an award between two groups of shareholders.
However, the CLB may stay the petition in its discretion and refer all the issues or
some of them to arbitration when the disputes raised are purely inter-parties and
dont effect the rights of strangers to the proceedings.
Plea of limitation does not apply to proceedings for prevention of oppression and
mismanagement. [A. Kalyani v. Vale Exports P. Ltd. (2002) 40 SCL 732 (CLB
Chennai]
The CLB has to act within the framework of the principles of natural justice and also
in accordance with its own Regulations. Hence, the provisions of the Evidence Act
and those of the Code of Civil Procedure do not apply to proceedings before the
CLB. [Rajinder Kumar & Sons Ltd. (1996) 87 Com. Cases 146 (CLB, New Delhi). Re-
emphasized in Sri Ramdas Motor Transport Ltd. v. Karedla Suryanarayana, (2002)
110.]
 ELIGIBILITY (SECTION 399/ 244)

The number of members required to make application under Section 397 & 398
of the Act to the CLB is given under Section 399 of the Act. Now Section 244 ,It
provides that:
1. Where the company has a share capital, the application must be signed by
atleast 100 members of the company or by 1/10th of total number of the
members, whichever is less, or by any member or members holding not less
than 1/10 th of the issued share capital of the company.
2. If the company has no share capital, the application has to be signed by
atleast 1/10 th of the total number of its members.
 ELIGIBILITY CONTINUED
The Central Government, may, however, allow any member or members to apply, if in its
opinion, circumstances exist which make it just and equitable to do so.
The Central Government or any person authorised by it in this behalf has also the power as
per Section 401 of the Act to apply for the relief under the section.
Joint holders of any share or shares are counted as one member. For example, if A, B and C
hold jointly 1000 shares, all the three shareholders shall be counted as a single member and
not as three members.
To be entitled to make the application, the members must have paid all the calls and other
sums due on their shares. This means that shareholders of partly paid shares are not
entitled to make an application to the CLB.
A call becomes due when notice is issued making the call. A mere resolution of the board
that a call be made is not enough. Liability arises on the date when notice is served or
deemed to be served on shareholders. (Stadmed (Pvt) Ltd. v. Kshetra Mohan Saha (1969) 39
Comp Cas. 741).
Petition for prevention by a single director on behalf of the company without authority of
board was not entertained. Invalidity was held to be not curable by subsequent
ratification. (Sankaranarayanan (KN) v. Shree Consultatation & Services (P) Ltd. (1994) 80
Comp. Cas. 558 (Mad.)
 ELIGIBILITY CONTINUED
Applicant must hold requisite number of shares at the time of filing the petition.
(Mahendra Singh Rathore v. Rajput Hotel & Resorts Pvt. Ltd. (1988) 1 Comp LJ
160.
Once the consent has been given by the requisite number of members, by
signing the application, the application may be made by one or more of them on
behalf and for the benefit of all of them.
In Rajahmundry Electric Supply Co. v. Nageshwara Rao, AIR 1956 SC 213 it has
been held by the Supreme Court that if some of the consenting members have,
subsequent to the presentation of the application, withdrawn their consent, it
would not affect the right of the applicant to proceed with the application.
Thus, obtaining of consent is a condition precedent to the making of the
application and hence consent obtained subsequent to the application is
ineffective. (Makhanlal Jain v. The Amrit Banaspati Company Ltd.)(1953) 23
Comp Cas 100 (All.)
ELIGIBILITY CONTINUED
In Kuttanad Rubber Company Ltd. v. K.T. Ittiyavirah, (1997) 88 Comp. Cas. 438 (Ker.) it
was held that it is not necessary for each of the petitioners to hold 1/10th of the
shares for filing petition. If a particular individual or individuals who propose to
move an application under Section 397-399 of the Act, held 1/10th of the shares
then no question of anybodys consent for such a petition would arise. They by
themselves would be entitled to move the petition and need not seek for anybodys
consent.
Where the petition is presented on behalf of members, the petition should
accompany:
(i) the letter/s of consent given by the members; and
(ii) a statement of particulars showing names, addresses, number of shares held
and whether all calls and other monies due on shares have been paid in respect of
members who have given consent to the petition being presented on their behalf.
However, the Calcutta High Court has held that it is not necessary that the
consenting members must have before them a petition at the time of signing
consent letters. [Bengal Laxmi Cotton Mills Ltd., (1965) 35 Comp Cas 187].
 Representatives

Where a member dies and his name being still in the register of
members, his legal representatives are entitled to proceed under
Sections 397 and 398 even if their names are not yet entered in the
register of members. Worldwide Agencies v. Margaret T. Desor, AIR
1990 SC 737.
 Appeals

If any party to the petition under Section 397 or 398 is not satisfied
with the order passed by the CLB, it can appeal to the High Court.
Appeal lies to the high court against the orders of CLB only on
question of Law.
An interim order passed under Section 397 & 398 is an order passed
in the matter of winding up and is appealable under Section 483.
Section 442
Mediator is supposed to resolve the dispute.
With in 90 days he has to complete proceeding
extendable up to next 30 days.
CA, CS with at least 15 years of continuous practice can
act as mediators, consultant.
 Section 247 Registered Valuers.
Objective is to ensure fair valuation.
Appointment of valuer, who should be a registered valuers, would be
done by audit committee or the board of directors.
Valuer should act impartially, exercise due diligence, should follow
prescribed rules and should be disinterested.
for wrongs done by valuers - fine : minimum 25,000 maximum 1 lac.
If Valuer commits fraud- fine : minimum 1,00, 000 upto 5,00, 000.
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