| Introduction: | | | | I have seen few cases where the minority |
| It is a fact that it is very rare to see a petition by a | | | | shareholders or a director in a Family Company files a |
| group of minority or majority under section 397/398 | | | | suit before a Civil Court alleging or challenging |
| of the Companies Act, 1956 in listed Public | | | | something in the Company. As the Civil Courts are bit |
| Companies. As everybody knows a Company needs | | | | cautious in granting an immediate relief and |
| to get qualified as per SEBI (DIP) regulations and | | | | entertaining a Company Dispute even, a party who |
| should satisfy other requirements before getting its | | | | has approached the Civil Court may not get any relief |
| shares listed over a stock exchange. There can not | | | | and ultimately, after few years, he may be advised |
| be a listed public company where the entire | | | | to approach the Company Law Board under section |
| shareholding is held by a single person or entity. The | | | | 397/398 of the Companies Act, 1956 and other |
| allotment shares are to be in accordance with the | | | | provisions of law. |
| SEBI (DIP) regulations and there will be many stake | | | | Complications: |
| holders holding shares in a Company. As such, | | | | When a party who has filed a Civil Suit alleging |
| normally it is very rare to see a petition by the | | | | something and who has failed to get the intended |
| minority or the majority in a listed public company | | | | relief by the Civil Court may be opposed very |
| under section 397/398 of the Companies Act, 1956. | | | | strongly when he files a petition under section 397 |
| Why many petitions are in respect of family | | | | 398 of the Companies Act, 1956 highlighting the same |
| companies? | | | | issue which he has raised in the suit. It is really a |
| Most of the petitions under section 397/398 of the | | | | complicated issue to dealwith. |
| Companies Act, 1956 come from family companies or | | | | A shareholder might not have been advised well |
| closely held companies. Maintaining a petition by a | | | | initially and will the same bar his corporal right to |
| minority or the majority under section 397/398 of | | | | approach the Company Law Board under section |
| the Companies Act, 1956 pertaining to a family | | | | 3976/398 of the Companies Act, 1956? |
| company is very easy and it is logical. In spite of | | | | Whether a shareholder or a minority group is allowed |
| plethora of corporate regulations and encouragement | | | | to abuse the process of court by filing many |
| to the companies to adhere to corporate | | | | petitions and approaching various forums causing |
| governance, family companies are still run as | | | | vexation to the clear majority in the Company? |
| proprietorship concerns. In some cases, we can not | | | | Whether the Company Law Board can look into the |
| even find the books of account in family companies | | | | issue which is pending before the Civil Court? |
| and all this issues will come to light when there comes | | | | Whether the Company Law Board can re-look into |
| serious dispute between or among the groups in the | | | | the issue upon which there was a finding by the Civil |
| Company. Its true that a procedural irregularity will | | | | Court? |
| not give rise to filing a petition under section 397/398 | | | | These are few questions and these are very |
| of the Companies Act, 1956 and the section should | | | | complicated without having a straight answer as I |
| never be misused. It is also true that a procedural | | | | feel. But, certainly, the rule is to be barring to do |
| irregularity may lead to a conclusion, at times, that it | | | | forum shopping causing a serious trouble to the |
| can be linked to oppression and mismanagement. | | | | majority as they should concentrate on their routine |
| There can not be a permanent rule as to whether a | | | | business without any hindrance. This is one type of |
| procedural irregularity can lead to a conclusion that | | | | issue pertaining to approaching different forums and |
| there exist an oppression and mismanagement in the | | | | finally approaching the Company Law Board under |
| Company. | | | | the provisions of Companies Act, 1956. |
| Point under discussion: | | | | There are cases where in a petition under section |
| Thus, as many family companies do not maintain | | | | 397/398 of the Companies Act, 1956, there will be a |
| proper books of accounts and neglect filing the | | | | serious allegation and counter allegation on a particular |
| returns etc. with the authorities, it is so easy to | | | | thing and it will be the basis for filing and maintaining |
| allege oppression and mismanagement in respect of | | | | the petition under section 397/398 of the Companies |
| family companies and thus, most of the petitions | | | | Act, 1956. What happens is that a majority will |
| under section 397/398 of the Companies Act, 1956 | | | | initiate a counter proceeding against the petitioner |
| are maintained. | | | | minority in the application under section 397/398 of |
| The point I want to discuss is about approaching | | | | the Companies Act, 1956, before some other forum |
| various forums other than Company Law Board | | | | and will stall the proceeding. The majority will contend |
| raising a Company Dispute. The jurisdiction of a civil | | | | that they have taken appropriate steps and other |
| court to entertain a company dispute is a | | | | proceeding is initiated and pending and as such there |
| complicated issue to dealwith and there is no express | | | | is no need of keeping a petition under section 397 |
| bar under the Companies Act, 1956 on Civil Court's | | | | 398 of the Companies Act, 1956 pending. This is |
| jurisdiction. This issue is sought to be addressed in | | | | another situation where normally a simultaneous |
| the new Companies Bill which contain a specific bar | | | | proceeding is resorted to. There are many |
| on the Civil Court's Jurisdiction. | | | | complicated issues and questions in the course and |
| Though, there is no bar in entertaining a Company | | | | there can not be a straight jacket rule and it depends |
| Dispute unless an alternative and specific remedy is | | | | upon the facts and circumstances of each case. |
| provided though Civil Courts do not encourage such | | | | Thus, the Company Law Board is burdened with |
| litigation and advice the parties to approach the | | | | discharging very complicated responsibilities under the |
| Company Law Board and its my personal opinion. The | | | | Companies Act, 1956 and many will also criticize the |
| Civil Courts may lack the needed expertise in dealing | | | | Board for the delay and for not granting the relief |
| with Company matters and it will lead the Civil Courts | | | | immediately and for the delay caused due to the |
| at times to hold that the proper forum is Company | | | | insistence on the procedural compliance. |
| Law Board. | | | | Note: the views expressed are my personal. |