PROCEDURE FOR FILING PETITION BEFORE COMPANY LAW BOARD AGAINST OPPRESSION AND MISMANGEMENT POWERS OF CLB AGAINST OPPRESSION AND MISMANAGEMENT:

[Mr. M. GOVINDARAJAN]

Sec.397 of the Companies Act, 1956 (‘Act’ for short) provides for filing application before the Company Law Board (‘CLB’ for short) for relief in cases of oppression and Sec. 398 of the Act provides for filing application before the CLB for relief in cases of mismanagement.

Sec. 397 provides that any members of a company who complain that the affairs of a company are being conducted in a manner prejudicial to public interest or in a manner oppressive to any member or members (including any one or more of themselves) may apply to the CLB for an order under this section provided that such members have a right to apply in virtue of Section 399.  If on any application, the CLB is of the opinion-

That the company’s affairs are being conducted in a manner prejudicial to public interest or in a manner oppressive to any member or members; and

That to wind up the company would unfairly prejudice such member or members, but that otherwise the facts would justify the making of a winding up order on the ground that it was just and equitable that the company should be wound up the CLB may, with a view to an end the matters complained of, make such order as it thinks fit.

Sec. 398 provides that any members of a company who complain-

that the affairs of the company are being conducted in a manner prejudicial to the public interest or in a manner prejudicial to the interests of the company; or

that a material change (not being a change brought about by, or in the interests of, any creditors including debenture holders, or any class of shareholders, of the company) has taken place in the management or control of the company, whether by an alteration in its Board of director or manager or in the ownership of the company’s shares, or if it has no share capital, in its membership, or in many other manner whatsoever, and that by reason of such change, it is likely that the affairs of the company will be conducted in a manner prejudicial to public interest or in a manner prejudicial to the interests of the company may apply to the CLB for an order under this section, provided such members have a right to apply in virtue of Section 399.

RIGHT TO APPLY:

The following members of a company are eligible to apply before CLB under Section 397 and 398:

in the case of a company having a share capital, not less than 100 members of the company or not less than one tenth of the total number of its members, whichever is less, or any member or members holding not less than one tenth of the issued share capital of the company, provided that the applicant(s) have paid all calls and other sums due on their shares;

in the case of a company not having a share capital, not less than one fifth of the total number of its members.

CENTRAL GOVERNMENT MAY APPLY:

The Central Government may, if in its opinion circumstances exist which make it just and equitable so to do, authorize any member or members of the company to apply to the CLB under Section 397 or 398 notwithstanding that the requirements are not fulfilled. The Central Government before authorizing any member or members require such member or members to give security for such amount as the Central Government may deem reasonable, for the payment of any costs which the CLB dealing with the application may order such member or members to pay any other person or persons who are parties to the application.

The Central Government by virtue of Sec. 401 of the Act is having power to apply to the CLB itself for an order under Sec. 397 or 398 or cause an application to be made to the CLB for such an order by any person authorized by it in this behalf.

PROCEDURE TO FILE PETITION:

The petition shall be drawn in Form 1 as prescribed under Company Law Board Regulations, 1991;

The petition/application has to be drawn on substantial paper of full scape size in double space as required under regulation 11 and 16 of the Company Law Board Regulations;

Regulation 11 provides that every petition shall be written, typewritten, cyclostyled or printed neatly and legibly, on one side of the substantial paper of foolscap size of double space and separate sheets shall be stitched together and every page shall be consecutively numbered.  Numbers and dates specified in any petition shall be expressed in figures as well as in words, where the date specified therein has not been stated according to the Gregorian calendar, the corresponding date according to the Gregorian calendar shall also be specified;

Regulation 16 provides that every petition shall set forth the name of the company, with its status, date of incorporation, the address of the registered office, authorized capital, paid up capital with division of different classes of shares and terms of issue, if any, in the case of preference shares, main objects in brief, for which the company was formed, present business activities of the company and shall also set forth concisely under distinct heads the grounds for such petition and the nature of relief(s) prayed for;

Requisite fee towards a petition i.e. Rs.5,000/- and Rs.50/- towards application by way of demand draft drawn in favor of ‘Pay & Accounts Officer, Ministry of Corporate Affairs, New Delhi/Kolkatta/Mumbai/Chennai’ has to be remitted;

The following documents are also to be enclosed with the petition:

document and/or other evidence in support of the statements made in the petition, as are reasonably open to the petitioner(s);

documentary evidence in proof of the eligibility and status of the petitioner(s) with the voting power held by each of them;

where the petition is presented on behalf of the members, the letter of consent given by them;

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;

whether the petition is presented by any member or members authorized by the Central Government under Section 399(4), the order of the Central Government authorizing such member or members to present the petition;

affidavit verifying the petition drawn on non judicial stamp paper of requisite value duly attested by Notary Public/Oath Commissioner in accordance with regulation 14(8) and (9) of the Company Law Board Regulation, 1991;

bank draft evidencing payment of application fee;

where the petition is filed by the authorized representative, Memorandum of appearance is to be appended and in case of an Advocate, a duly executed Vakalatnama should be filed;

The petition has to be served on the concerned Registrar of Companies and Regional Director, Ministry of Corporate Affairs and on all the respondents and evidence of service be produced;

The petition along with annexures duly paginated and serially numbered with proper index and required to be bound properly in the paper book.

ORDER BY CLB:

If the Managing Director or any other director or the manager of a company, or any other person, who has not been impleaded as a respondent to any application under Section 397 or 398 applies to be added as a respondent thereto, the CLB shall, if it is satisfied that there is sufficient cause for doing so, direct that he may be added as a respondent accordingly.

Before passing final order the CLB shall take into consideration of the representations, if any, made to it by the Central Government.  The CLB may on the application of any party to the proceeding make any interim order which it thinks fit for regulating the conduct of the company’s affairs upon such terms and conditions as appear to it be just and equitable, pending the making of a final order.

Without prejudice to the generality of the powers of the CLB under Section 397 or 398, any order under either section may provide for-

the regulation of the conduct of the company’s affairs in future;

the purchase of the shares or interests of any members of the company by other members thereof or by the company;

in the case of a purchase of its shares by the company as aforesaid, the consequent reduction of its share capital;

the termination, setting aside or modification of any agreement, howsoever arrived at, between the company on the one hand and any of the following persons, on the other, namely:-

the managing director;

any other director; and

the manager.

upon such terms and conditions as may, in the opinion of the CLB, be just and equitable in all the circumstances of the case;

the termination, setting aside or modification of any agreement between the company and any person not referred to above, provided that no such agreement shall be terminated, set aside or modified except after due notice to the party concerned and provided further that no such agreement shall be modified except after obtaining the consent of the party concerned;

the setting aside of any transfer, delivery of goods, payment, execution or other act relating to property made or done by or against the company within three months before the date of the application under Section 397 or 398 which would, if made or done by or against an individual, be deemed in his insolvency to be a fraudulent preference;

Any other matter for which in the opinion of the CLB it is just and equitable that provision should be made.