Simultaneous proceedings under section 397/398?

It is known that section 399 of the Companies Act, 1956 entitles minority shareholders, subject to the qualification prescribed, to approach the Company Law Board (CLB) under section 397/398 of the Companies Act, 1956 seeking relief against the ‘oppression and mis-management’ from the majority shareholders in the Company. As majority shareholders effectively controls the Board through their say in General Body Meetings, the protection to the majority is not envisaged though even the majority can approach the Company Law Board under section 397/398 of the Companies Act, 1956 when they become artificial minority under certain circumstances. There were several principles and precedents developed over the time on the scope of section 397/398 of the Companies Act, 1956 and these proceedings are seen as most complex usually. Though even the liquidation proceedings exercised by the High Court are complex at times, the proceedings under section 397/398 of the Companies Act, 1956 are really complex as the Board would be exercising its power to ‘put an end to the matters complained of’. Dealing with the scope of the provisions dealing with the ‘oppression and mismanagement’ under Companies Act, 1956, the Hon’ble Bombay High Court in Mauli Chand Sharma and another Vs. Union of India and others, (1977) 47 Com Cases 92, has held that:

“chapter II of the Act, which includes section 255, deals with corporate management of the company through directors in normal circumstances, while Chapter VI, which contains sections 397, 398 and 402, deals with emergent situations or extraordinary circumstances where the normal corporate management has failed and has run into oppression or mismanagement and steps are required to be taken to prevent oppression and/or mismanagement in the conduct of the affairs of the company. In the context of this scheme having regard to the object that is sought to be achieved by sections 397 and 398 read with sections 402, the powers of the court under can not be read as subject to the provisions contained in the other chapters which deal with normal corporate management of a company. Further, an analysis of the sections contained in Chapter VI of the Act will also indicate that the powers of the court under sections 397 and 398 read with section 402 can not be read as being subject to the other provisions contained in sections dealing with usual corporate management of a company in normal circumstances. The topic or subjects dealt with by sections 397 and 398 are such that it becomes impossible to read any such restriction or limitation on the powers of the court acting under section 402. Without prejudice to the generality of the powers conferred on the court under these sections, section 402 proceeds to indicate what types of orders the court could pass. Under clause (a) of section 402, the court’s order may provide for the regulation of the conduct of the company’s affairs in future and under clause (g) the courts order may provide for any other matter for which in the opinion of the court it is just and equitable that provision should be made. An examination of the aforesaid sections brings out two aspects; first, the very wide nature of the power conferred on the court, and secondly, the object that is sought to be achieved by the exercise of such power, with the result that the only limitation that could be impliedly read on the exercise of the empower would be that nexus must  exist between the order that may be passed thereunder and the object sought to be achieved by those sections and beyond this limitation which arises by necessary implication it is difficult to read any other restriction or limitation on the exercise of the court’s power. Further, section 397 and 398 are intended to avoid winding up of the company if possible and keep it going while at the same time relieving in minority shareholders from acts of oppression and mismanagement or preventing its affairs being conducted in a manner prejudicial to public interest and, if that be the objective, the court must have power to interfere with he normal corporate management of the company, and to supplant the entire corporate management, or rather, mismanagement, by resorting to non-corporate management which may take the form of appointing an administrator or a special officer or a committee of advisers, etc., who would be in charge of the company”. 

Though I am not going to deal with many issues under section 397/398 of the Companies Act, 1956, it is very important to understand two important pre-requisites to maintain a petition under section 397/398 and those are as follows:

(1)   Minority shareholders approaching CLB should establish clearly that they hold the requisite qualification under section 399.

(2)   Minority shareholders approaching the CLB should establish a prima-facie case though no case gets dismissed now-a-days on the issue of ‘non-establishment’ of prima-facie case as it can amount to giving a finding on the main petition itself at times.

If we keep the qualification issue apart, it is long been settled that ‘an isolated incident’ can not entitle the minority shareholders to approach the Board under section 397/398 of the Act. There are several precedents on the issue though a lenient view is taken now-a-days on the issue of ‘continuity of acts’. Even isolated incident in the Company can lead to the intervention of the CLB under section 397/398 of the Companies Act, 1956 depending on as to how the Board considers the effect of that incident. It establishes a point that there can be issues between the minority and majority which can be settled before any other forum like Civil Court etc. without invoking the jurisdiction of Company Law Board under section 397/398. There can be an issue of enforcement of an agreement between two groups in the Company and that dispute can be settled through a Civil Court or by an Arbitrator if the agreement contains an Arbitration Clause. Thus, if the disputes erupt between the groups in the Company, then, one group may file a Criminal Complaint on the other group, may file a Civil Suit and even can ask for an appointment of arbitrator to look into the disputes if the cause for the dispute is with regard to the ‘enforcement of any specific agreement’.

Res-subjudice & Res-judicata:

The point is as to what is the effect of pending or concluded legal proceedings to the proceedings under section 397/398 of the Companies Act, 1956. Can the Board ignore the findings of concluded proceedings? Can the Board give a different finding on the issue concluded by other forum?. Can the Board ignore the pending legal proceedings between the minority and majority? Etc. The issue of approaching two forums with the same relief and seeking the same relief concluded by the competent forum are dealt-with under section 10 and 11 of Civil Procedure Code, 1908 and those are reproduced below without explanations.

“10. Stay of Suit – No court shall proceed with the trial of any suit in which the matter in issue is also directly and substantially in issue in a previously instituted suit between the same parties, or between parties under whom they or any of them claim litigating under the same title where such suit is pending in the same or any other Court in India having jurisdiction to grant the relief claimed, or in any court beyond the limits of India established or continued by the Central Government and having like jurisdiction or before the Supreme Court.”

“11. Res Judicata – No court shall try any suit or issue in which the matter directly or substantially in issue has been directly or substantially is in issue in a former suit between the same parties, or between the parties under whom they or any of them claim, litigating under the same title, in a court competent to try such subsequent suit or the suit in which such issue has been subsequently raised, and has been heard and finally decided by such court.”

These two principles are so important in a proceeding under section 397/398 of the Companies Act, 1956 though now-a-days it is rare to see a litigation pending in a Civil Court between the minority shareholders and majority or the Company. Certain settled legal principles like Res subjudice and Res judicata are to be followed by any judicial authority or quasi-judicial authority as it is supported by sound logic. This is similar to the ‘principle of natural justice’. However, application of these principles to the proceedings under section 397/398 of the Companies Act, 1956 are most complex and the Board exercises lot of discretion in this regard making a balance between the settled legal principles and the object of section 397/398.

Simultaneous jurisdiction:

Explaining a to how the shareholders are entitled to approach Civil Court or Arbitrator at times and as to how the CLB too has power to look into the issue, the Court in CDS Financial Services (Mauritius) Limited Vs. BPL Communications Limited and others, (2004) 121 Comp Cases 375, has held that:

“when there is no express provision excluding the jurisdiction of the civil courts, such exclusion can be implied only in cases where a right itself is created and the machinery of enforcement of such right is also provided by the statute. If the right is traceable to the general law of contracts or it is a common law right, it can be enforced through the civil court, even though the forum under the statute also will have jurisdiction to enforce that right. Sections 397, 398 and 408 of the Companies Act, 1956, do not confer exclusive jurisdiction on the company court to grant reliefs against oppression and mismanagement. The scope of these sections is to provide a convenient remedy for minority shareholders under certain conditions and the provisions therein are not intended to exclude all other remedies”.

Possible misuse:

With the simultaneous jurisdiction and shareholders having a scope to approach Civil Court or Arbitrator and also approach CLB at times, there is a possibility for converting the jurisdiction of CLB under section 397/398 to that of a Civil Court. It is very much possible as even isolated incidents are considered under section 397/398 of the Companies Act, 1956 though it depends upon as to how the CLB views it.  Though it was a case of exercise of powers by Company Court, dealing with the similar issue, the Court in B.Ramachandra Adityan Vs. Educational Trustee Co. (P) Ltd and another, (2003) 5 Comp LJ 413 (Mad), has held that:

“It is, no doubt, true that the scope of the civil suit is different as the proposed suit is one under the general law and the scope of the company petition is different. But, it will not be open to convert the proceedings in the company Court, which are summary in nature and to use the finding arrived at in the summary proceeding, if it is favourable to the petitioner, in the civil proceeding. It is in the sense that the proceedings under the company law are an abuse of the process of the court and it is well settled that the proceeding herein can not be used for some oblique or some extraneous purpose”.

Striking a balance:

Dealing with the issue, the Company Law Board in RDF Power Projects Ltd. and others Vs. M.Murali Krishna and others, (2005) 4 Comp LJ 97 (CLB), has held that:

 “the object of section 10 of the Code of Civil Procedure 1908, is to avoid conflicting decisions of two competent courts over the same matter and save the time of the court, where the subsequent proceedings are initiated in the same matter. By virtue of section 10, a court shall not proceed with the trail of a suit in which the matter is directly and substantially the same as the one in issue in a previously instituted pending between the same parties or parties under whom they claim to litigate under the same title. The following are essential conditions for application of the provisions of section 10:

(a)    There must be two pending suits on the same matter.

(b)   These suits must be between the same parties or parties under whom they or any of them claim to litigate under the same title.

(c)    The matter in issue must be directly and substantially the same in both the suits.

(d)   The suits must be pending before the competent court or courts.”

Further, the Board has observed that “in the light of the provisions of section 10, the subject matter involved both in the Civil Court and the Company Law Board must be examined”. Further, the Board went on observing that “a careful analysis of the issues both before the Civil Court and the Company Law Board would indicate that the whole of the subject matter in these proceedings is not identical. Section 10 is not attracted if one or some of the issues are in common as held by the courts in a number of decisions. The entire subject-matter of the company petition is not covered by the previously instituted suit. It is free from doubt that there is no substantial identity of the subject-matter before the Civil Court and the Company Law Board. The only issue before the Civil Court is in regard to the right of the second applicant to continue in the office of the managing director of the company. As a result the petitioners shall not interfere in the functioning of the company. Thus, none of the other contentious issues raised in the company petition is before the Civil Court. Therefore, the decision of the Civil Court will not definitely affect the decision in the present company petition, save the continuance of second applicant as the managing director, in which case it can not be said that the matter in issue is directly and substantially is the same in both the proceedings. Section 10 would only apply, in my view, where the decision in previous suit will definitely affect the decision in the later proceedings. Moreover, sections 397 and 398 provide adequate relief to the aggrieved members on account of the possible oppression by the majority and a Civil Court can not usurp the powers of a Company Court, whose jurisdiction brings from an enactment of Parliament and adjudge common law rights on a prior consideration”.

Conclusion:

1.     The CLB can certainly look into the concluded proceedings, but, can not give a different finding on the same issue concluded by a Competent Court.

2.     The Petitioners approaching the CLB can refer to the concluded proceedings; however, the petitioners may not be able to get a relief with the similar or same grievances raised in the concluded proceedings.

3.     Irrespective of pendency of any proceedings between the majority and the minority, the CLB can entertain a petition under section 397/398 of the Act and the CLB will take an appropriate decision as to the issue of grant of relief or the maintainability of a petition under those circumstances.

4.     When it comes to the issue of applicability of settled legal principles like Res Judicata or Res Judice, the CLB will exercise its discretion based on the facts of the case and no hard and fast rule can be laid in this regard.

Note: The views expressed are my personal. 

Petition under section 397/398 - Subsequent events - Scope?

Section 397/398 of the Companies Act, 1956 provides relief to the minority shareholders against the oppressive actions of the majority and the mis-management in the company. Section 399 of the Companies Act, 1956 deals with the issue as to who can approach the Company Law Board (CLB) seeking relief under section 397/398 and other connected provisions. Section 399 of the Companies Act, 1956 is reproduced below:

“Sec. 399     -     Right to apply under sections 397 and 398.

(1) The following members of a company shall have the right to apply under section 397 or 398:

(a) in the case of a company having a share capital, not less than one hundred 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 or applicants have paid all calls and other sums due on their shares;

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

(2) For the purposes of sub-section (1), where any share or shares are held by two or more persons jointly, they shall be counted only as one member.

(3) Where any members of a company are entitled to make an application in virtue of sub-section (1), any one or more of them having obtained the consent in writing of the rest, may make the application on behalf and for the benefit of all of them.

(4) The Central Government may, if in its opinion circumstances exist which make it just and equitable so to do, authorise any member or members of the company to apply to the Company Law Board under section 397 or 398, notwithstanding that the requirements of clause (a) or clause (b), as the case may be, of sub-section (1) are not fulfilled.

(5) The Central Government may, before authorising any member or members as aforesaid, 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 Company Law Board dealing with the application may order such member or members to pay to any other person or persons who are parties to the application.”

Though oppression and mis-management have been dealt-with separately under section 397/398 of the Act, those are inter-connected and it is settled that a composite petition is maintainable under section 397/398 of the Companies Act, 1956. In a petition under section 397/398 of the Companies Act, 1956, petitioners usually seek relief under section 111A and also under section 237 of the Companies Act, 1956 seeking investigation into the affairs of the Company. Section 402 of the Act details as to the powers of the Company Law Board under section 397/398 of the Act, however, it is settled that section 402 can not limit the powers of the Company Law Board under section 397/398. In the light of the fact that it is very difficult for anyone or even the minority shareholders to get a relief from a Civil Court on disputes between the majority and minority shareholders in view of the inordinate delay in courts and lack of expertise, CLB is the only hope for the minority shareholders to get their interests in the Company protected. Minority shareholders can approach the Central Government seeking intervention, but, the Government rarely entertains such pleas. There is criticism from various stake-holders at powers being exercised under section 397/398 of the Act and the criticism, in brief, is as follows:

From minority:

·        The relief provided under section 397 and 398 is not effective.

·        CLB too insists on technicalities.

·        There is a delay in conduct of proceedings even before CLB.

·        There are problems with the execution of orders.

From majority:

·        Section 397/398 of the Companies Act, 1956 is often mis-used and a false petition can have disastrous effect on the growth and survival of the Company at times.

·        The minority shareholders take advantage of technicalities and gets relief even though equity is not in their side.

·        As the CLB entertains petitions under section 397/398 loosely without looking at the merits and keeps the petition pending, the majority or the company can suffer irreparable damage.

Despite criticism, one should understand that the CLB performs very difficult functions under section 397/398 of the Companies Act, 1956 and the CLB should balance the interests of the minority with the rights of the majority to have a say in the administration of the Company. The delay in disposal of petitions is caused due to the complexity of proceedings under section 397/398 of the Companies Act, 1956 and it would be very difficult to dismiss the petition prima-facie without ascertaining the facts as section 397/398 is meant to protect the interests of the minority shareholders. According to me, if we look at the precedents earlier and the orders of the Board, too much technicalities were stressed and followed. I think that it is not the case anymore and the CLB is guided with the ‘principles of natural justice’ and it will endeavor to ascertain the actual state of affairs in the Company and try to put an end to the matters complained of if oppression or mis-management is proved.

We usually see petitions under section 397/398 of the Companies Act, 1956 in-respect of closely held companies or companies substantially owned by three or four groups. Listed companies are supposed to follow many more guidelines of SEBI as everyone knows in addition to the provisions of the Companies Act, 1956 and also listed companies are mandated to do many things periodically in view of the detailed listing-agreement with the concerned stock-exchange/s. Once disputes erupt between the groups in the company, it would be extremely difficult for them to go-back to the earlier trust-mode. That’s why, many petitions under section 397/398 of the Companies Act, 1956 are settled with one group coming out of the company during the proceedings before the Board itself. Otherwise, one group may be requesting the Board to direct the majority to buy the shares of the minority on a fair value and the valuation is also a bigger exercise before the Board.

Taking note of subsequent events:

If we come-back to the issue, petitioners approaching the Company Law Board under section 397/398 of Companies Act, 1956 are supposed to provide full particulars in their petition. The High Court of Calcutta in Clive Mills Co. Ltd,       (1964) 34 Com Cases 731, has held that “in an application under sections 397 and 398 where fraud, mismanagement, misappropriation or other improper conduct is alleged, full particulars must be set out in order to enable the party charged to understand what he is charged with and also to enable him to answer such charges”.

Once the trust-deficit comes between or among the shareholders and especially in closely-held or family companies, one group tries to out-smart other through various tactics and in most of the cases, this tendency is continued irrespective of the pendency of petition under section 397/398 of the Companies Act, 1956 before the Board. It may be difficult to everyone to play with the order of CLB, but, the majority can continue with their oppressive actions against the majority even when the minority pleads relief before the Board. Under these circumstances, if the minority is asked to follow the technicalities by amending the petition which involves further procedure and which delays the relief, it is possible that the minority shareholders may suffer irreparable loss. It may also not possible for the minority shareholders to opt for amendment of the petition again and again, if that is the procedure, the minority shareholders can only be focusing on amending the petitions when their rights or interests in the company are being seriously compromised in the hands of majority. It may be enough for the petitioner to file a detailed affidavit before the CLB bringing the developments to the notice of the Board and the Board may take note of it and pass orders immediately in the interests of the minority or may ask clarification from the majority shareholders. It is very important for the CLB to take note of even the subsequent developments in the company as ultimately the interests of the minority should be protected and the CLB is supposed to put an end to the matters complained of if the allegations are proved to be right.  According to me, the CLB can take note of all subsequent events upto the date of final hearing or disposal of the petition. However, taking a contrary view, the Calcutta High Court, in Mohta Bros.(P) Ltd. and others Vs. Calcutta Landing and Shipping Co. Ltd. and others,(1970) 40 Com Cases 119, has held that “when dealing with a petition for relief from oppression or mismanagement made under sections 397 and 398 of the Companies Act, 1956, the court must confine itself to the case as made out in the petition and to the allegations made therein and the supporting affidavits and not look at other evidence with regard to events that might have happened subsequent to the petition”.

Similarly, making a distinction between the contents in the main petition and the subsequent events brought on-record, the Company Law Board in Karedla Suryanarayan and othes Vs. Sri ram Dass Motor Transport (P) Ltd. and others (1998) 1 Com LJ 342 (CLB), has held that “a section 397/398 petition has to stand on its own on the basis of the allegations contained in the petition. Subsequent events brought on record alone, in case the main petition fails on merits, can not entitle a person to any relief. In case, the allegations in the main petition are proved, then the subsequent events may be taken into consideration by the Company Law Board in moulding suitable reliefs. Since, on most of the occasions, when subsequent events are sought to be brought on record either through an amendment to the main petition or through an application, certain interim reliefs are also sought for, as happened in this application. Since in such cases, the main petition itself would be pending and that there would have been no occasion for us to find out whether the petitioners have made out a case for grant of relief thereof, any interim relief prayed for in such applications containing subsequent events could only be related to maintenance of status quo in regard to the affairs of the company. No relief which would upset the status quo can be granted when the allegations in the main petition are yet to be assessed by the Company Law Board. Thus, on the issue of subsequent events, it is held that there is no bar in subsequent events being brought on record and being considered by the Company Law Board also, but such consideration would be only to mould the relief to be granted in case the petitioner succeeds in the main petition and that any interim relief granted, based on subsequent events, would be limited to status quo being maintained in regard to the affairs of the company”.

In Jer Rutton Kavasmaneck and others Vs. Gharda Chemicals Ltd. and others, (2001) 106 Com Cases 24, the Court has held that “in a petition for relief under section 397 of the Companies Act, 1956, it is permissible to bring on record by amendment not only the facts pertaining to the events up to the filing of the petition but also subsequent events. Once the court comes to the conclusion that the petition is maintainable then subsequent events can also be considered in order to do complete justice between the parties and to make appropriate orders for removing the oppression”. This is a case where the Court has made it clear that the subsequent events can be brought on-record in a proceeding under section 397/398 of the Companies Act, 1956, however, refers to ‘amendment’.

Supporting the point that subsequent events should also be looked into under section 397/398 of Companies Act, 1956, the Calcutta High Court in Promode Kumar Mittal and Others Vs. Southern Steel Ltd. and others, (1980) 50 Com Cases 555, has held that  “the court is to take notice of all the subsequent events to grant reliefs finally after trial in a company matter, and the interim orders passed from time to time by the court in all applications, the meetings held under the chairman appointed by the court, and the resolutions passed by majority shareholders and directors present therein are all relevant”.

In this connection, we should also look at Regulation 24 of Company Law Board Regulations, 1991 and the same is reproduced below:

“24. Power of Bench to call for further information/evidence – The Bench may, before passing orders on the petition, require the parties or any one or more of them, to produce such further documentary or other evidence as the Bench may consider necessary -

  (a) for the purpose of satisfying itself as to the truth of the allegations made in the petition; or

  (b) for ascertaining any information which, in the opinion of the Bench, is necessary for the purpose of enabling it to pass orders on the petition.”

Conclusion:

The reason for the establishment of Tribunals like Company Law Board is to do away with the cumbersome procedure like C.P.C followed by the Court though each provision in the C.P.C is supported by a sound logic. The amendment procedure may be good even before an Arbitrator or Arbitral Tribal which deals with a specific relief. But, under section 397/398 of the Companies Act, 1956, the CLB can pass any reasoned order in the interests of the Company, in the interests of the minority and in order to put an end to the matters complained of. The CLB may pass suitable orders keeping in-view the object of section 397/398 of the Act and it can not confine itself simply to the admission or the rejection of the relief sought in the petition. As such, events subsequent to the filing of petition under section 397/398 of the Companies Act, 1956 should be considered by the Board without insisting too much on technicalities as otherwise, the entire purpose of section 397/398 would be defeated according to me.

Note: the views expressed are my personal. 

397/398: Joint Venture disputes leading to litigation – a case study?

It is often been criticized that section 397/398 of the Companies Act, 1956 is being used as a forum to settle personal disputes between or among the shareholders. Taking advantage of the proposition that the Company Law Board has elaborate powers under section 397/398 of the Companies Act, 1956 read-with section 402, the shareholders/minority shareholders/petitioners approach the Company Law Board for the disputes which ought to have settled before other forums like Civil Court or the Magistrate Court. This is a constant criticism on the exercise of jurisdiction by the Company Law Board under section 397/398 of the Companies Act, 1956. Litigation is resorted often under section 397/398 of the Companies Act, 1956 so as to stall a proceeding before the Debt Recovery Tribunal and at times to get a transaction entered into between the Company and an outsider is set-aside. The Constitutional Courts have constantly maintained as to what constitutes ‘Oppression’ and what constitutes ‘Mismanagement’. Initially, there was so much emphasis on the definition of ‘Oppression’ and ‘Mismanagement’ and it is settled that an action of the majority should be ‘harsh and burdensome’ if it had to qualify for any remedial or preventive measures under section 397/398 of the Companies Act, 1956. But, now, there are judgments of Constitutional Courts laying emphasis on the ultimate objective of section 397/398 of the Companies Act, 1956 and the Courts held now that any preventive and remedial measures can be passed by the Company Law Board under section 397/398 of the Companies Act, 1956 even when there is no ‘Oppression and Mismanagement’ in strict senso.

The very interesting thing under section 397/398 of the Companies Act, 1956 is as to when the disputes arise between the parties to a ‘Joint Venture Agreement’ or understanding and raising these Joint Venture disputes pertaining to two separate legal entities in the ‘Joint Venture Company’ which is called ‘Special Purpose Vehicle’ very often. The Joint Venture disputes and these disputes leading to a petition under section 397/398 of the Companies Act, 1956 is always complicated and also interesting. I am of the opinion that the understanding between the two separate legal entities to the Joint Venture Agreement can be looked into in respect of a petition filed in the ‘Joint Venture Company’ which is constituted as a ‘Special Purpose Vehicle’ often. Infact, looking into the Joint Venture Agreements or the understanding and interpretation therefor is so difficult. At times, the clauses in the Joint Venture Agreement may have several meanings leaving huge scope for litigation. Again, it is complicatedness of corporate dealings that the business is done or the clauses in the Joint Venture Agreement is dealt with in the e-mail communications and acted upon. Even when the ‘Joint Venture Understanding’ is completely changed, it can happen through E-mail Communications too and it is possible. This corporate practice and the reality of corporate world makes it difficult for any one and especially the Company Law Board to understand the background of the ‘Joint Venture Understanding’ when it has to look into these business understandings in a Petition under section 397/398 of Companies Act, 1956.

The another significant point about the Joint-Venture understanding is that it can also substantially deal with the ‘Joint Venture Company’ or the separate legal entity which is often established as a ‘Special Purpose Vehicle’. This Company or the ‘Special Purpose Vehicle’ carries-out the Joint Venture Understanding. The understanding may refer as to the investment to be made in the ‘Special Purpose Vehicle Company’, the representation in the Board etc. While any company in India should be incorporated and run as per the provisions of the Companies Act, the Articles of Association etc., a conflict may come when the clause in the Joint-Venture Agreement comes in contrast to the express provision in the Companies Act, 1956. The Companies Act, 1956 may deal with the proportionate representation to the Board and other issues pertaining to appointment of Directors etc, and the Joint Venture Agreement may have an interesting arrangement when it comes to the representation in the ‘Special Purpose Vehicle Company’ which can only be a Private Limited Company or a Public Limited Company constituted under the provisions of the Companies Act, 1956.

I would like to deal with a hypothetical case study in this regard and it is as follows:

Facts of the Case:

A Company has know-how in respect of a particular thing and it is a Foreign Company being the research and development as its strength. It wanted to expand its activity in India upon an understanding and using the Indian policy of Foreign Direct Investment. It has found-out a Private Limited Company in India which has expertise in manufacturing. Both Companies have come together and held thorough discussions and decided to form a separate company to act upon the understanding. Accordingly, a separate ‘Special Purpose Vehicle Company’ has been constituted in India. The foreign partner or the Company to the Joint-venture is interested in getting their ‘intellectual property’ carefully guarded and it keeps a watch as to the leakage of its secrets or the know-how. Thus, there was a detailed business understanding between the Foreign Company and the Indian Company and another Company as a ‘Special Purpose Vehicle Company’ has thus been constituted. The main Joint Venture Agreement has got an Arbitration Clause to get the disputes settled through Arbitration.

Even after the constitution of the ‘Special Purpose Vehicle Company’, the communications went on between the Foreign Company and the Indian Company constantly and it refers to the business being carried-out by the separate ‘Special Purpose Vehicle Company’. There were misgivings at times as to the implementation of the Joint-Venture Agreements, there were complaints, there were explanations and even the accommodations were made when it comes to complying with the clauses in the Joint Venture Agreement. The business is carried-out this way for few years and suddenly, the confidence between the two major groups has lost and the foreign player has become aggressive and wanted to have a much more stake in the ‘Special Purpose Vehicle Company’. The Foreign players insisted for an expansion of activity and wanted an additional investment into the ‘Special Purpose Vehicle Company’. As another group could not make an additional investment in the Company as required, the Foreign Company has brought the additional investment into the ‘Special Purpose Vehicle Company’, got the authorized share capital increased and its equity in the Company has thus been substantially increased. Now, the other partner holds only a minimal equity in the ‘Special Purpose Vehicle Company’. There is a complication in this entire issue regarding the representation to the Bard of ‘Special Purpose Vehicle Company’. While the initial Joint Venture Agreement has elaborately dealt with the representation issue, the Articles say a different thing that the directors in the ‘Special Purpose Vehicle Company’ are to be re-elected every year. Despite this clause in the Articles, the Joint Venture Agreement or the understanding was acted upon for some time and after the additional investment, the Foreign Player wants a complete say in the ‘Special Purpose Vehicle Company’ and insists that it should be run as a separate Company without giving too much priority as to how the Company was constituted and the main and initial understanding. Even when it comes to the initial and main understanding, there was enough and countless communication in-between.

Now, referring to the additional investment and allotment of equity and referring as to how the Joint-Venture clauses are violated, the other Indian partner having a negligible stake files a Petition under section 397/398 of the Companies Act, 1956 seeking various relief against the majority in the ‘Special Purpose Vehicle Company’ and it meant that the Indian player to the Joint Venture is questioning the Foreign Company literally.

The entire narration in the petition under section 397/398 of the Companies Act, 1956 deals with all business issues, complaints etc. from the past so many years and despite these issues and complaints, the Joint Venture Agreement was acted upon substantially and the business was as usual for sometime.

Now, the petition is filed in respect of the ‘Special Purpose Vehicle Company’ and it is very difficult to allege ‘Oppression and Mis-management in respect of this Company. This Company is professionally run though it carries-out the substance of the business understanding between the foreign player and the Indian Company.

The Joint Venture Agreement or the understanding contains an Arbitration Agreement. There can be an argument that the issues under Joint Venture Agreement can be raised separately before the Arbitrator or the Civil Court and these disputes can not constitute an act of ‘Oppression’ and ‘Mis-management’. There can be counter argument that the ‘Special Purpose Vehicle Company’ was constituted solely based on the ‘Joint Venture Understanding’ and as such those disputes should also be looked into while dealing with a petition by the minority in the Company under section 397/398 of the Companies Act, 1956.

The above narration of a hypothetical case is only an example as to how difficult it is to deal with litigation based on a ‘Joint Venture Agreement’ under section 397/398 of the Companies Act, 1956.

Note: the views expressed are my personal and a view point only.

Section 397/398: Harassment to majority shareholders?

While the intention behind providing preventive and some remedial measures under section 397/398 of Companies Act, 1956 to the minority shareholders is good, the section is misused at times causing enormous loss to the Company or the Majority Shareholders. As everybody knows that section 397 provides relief to the minority shareholders if there is oppression by the majority; and section 398 provides relief to the minority shareholders when there is mismanagement in the Company. While, according to me, what constitutes ‘oppression’ and what constitutes ‘mismanagement’ is subjective, both the sections are cited while the minority seeks relief against the majority before the Company Law Board or NCLT in future. Though, according to me, the Company Law Board can pass any orders under section 397/398 of Companies Act, 1956 in order to put an end to the matters complained of, even other sections of the Companies Act are cited routinely and in most cases investigation into the affairs is also sought for. Listed Public Companies normally do follow all the corporate requirements as it is under scrutiny from SEBI and as the listed companies are bound to comply with the listing agreement entered into with the relevant Stock Exchanges. In India, many family companies or closely held companies do not follow the requirements of the Companies Act, 1956 and it would very often be difficult for an outsider to know as to the status of the Company or even it is difficult for an adjudicating authority to find-out truth.

Many family companies or closely held Private Companies are run upon mutual understanding and when understanding among the shareholders gets shaken, it would possibly lead to litigation. If these companies do not comply with the corporate requirements or the mandatory requirements under the provisions of the Companies Act, 1956, then, it would be difficult for the Company Law Board to ascertain the truth under section 397/398 of the Companies Act, 1956. In these matters, it would be very easy for an applicant or a group of minority qualified under section 399 of the Companies Act, 1956 to be able to make-out a prima facie based on concealments and the Company Law Board may pass interim orders or may give interim directions pending the disposal of the main Company Petition. Whether to grant an ex-parte interim order or grant an interim relief after hearing the parties concerned will depend upon the urgency cited and the style and understanding of the presiding officer about the case before it.

But, depending upon the style of the Presiding Officer, in my opinion, once the interim order or the relief is granted, then, it will remain so until the final disposal of the Company Petition. In my opinion and in view of the stakes involved in many company disputes, when an ex-parte order is granted, then, the matter is again to be heard fully when the opposite party makes an objection to the passing of the ex-parte order.

It is true that it will be very difficult for a presiding officer, according to me, to comprehend the entire case within minutes and immediate understanding is possible only in few cases based on the averments in the Company Petition. And, there can also be a practice to entertain all Company Petitions under section 397/398 of the Companies Act, 1956 saying that all contentious issues can be looked into only during the final disposal of the case. According to me, this is not correct and when there is no prima facie case under section 397/398 of the Companies Act, 1956 upon the bare perusal of the Company Petition, then, there should not be any interim relief and such Company Petitions should be dismissed even without asking the opposite party to file a Counter Statement. But, in practice, only when the maintainability of the petition is questioned on the ground of qualification under section 399, the matter would be looked into and even in this case involving contentious issues like further issue and allegation of fraudulent transfers, the Board would be left with no other option except to get all the contentious matters decided finally and after hearing the version of the opposite parties or the majority shareholders. But, when the majority comes-up with a petition to dismiss the Company Petition under section 397/398 of the Companies Act, 1956 on the ground that it lacks the basic required averments, then, such pleas, according me, are not entertained. There can be no reason as to why a Company Petition under section 397/398 of the Companies Act, 1956 should be pending when there is no prima facie case of ‘Oppression and Mismanagement based on the averments in the Company Petition and the documents filed. The case where the further enquiry is needed can be completely different.

Emphasizing on the need of having a prima facie case, the Hon’ble Calcutta High Court, in A.P. O. T. Nos. 355 of 2010, between AI Champdany Industries Limited & Others Vs. Blancatex A. G. & Others (CDJ 2011 Cal HC 557), was pleased to observe as follows:

“These findings do not show that any prima facie case under section 397 and 398 has been appreciated by the Company Law Board. The Board, in my opinion, has adopted a wrong approach. The Board was required to see whether the existing pleadings and materials disclosed any prima facie case. In this type of an application, prima facie case means a case, which on the available evidence, has a reasonable likelihood of success at the trial. If such a case was established then it would have been proper, to exercise its powers under the law, to order disclosure of documents. The approach taken by the Board was that the prima facie case was to be established by ordering disclosure of documents, which was erroneous. I make it absolutely plain that the prima facie case to be determined is the prima facie case in the section 397, section 398 proceedings.”

Note: the views expressed are my personal and a view point only.

397/398: Properties not in Company’s name – litigation?

While some closely held Private Limited Companies do strictly adhere to the provisions of the Companies Act, 1956, many closely held Private Companies completely ignore the provisions of the Companies Act and these companies are often run as if those are proprietorship concerns. There are closely held Private Limited Companies which simply follow the advice given by the Company Secretaries and Chartered Accountants. The promoters and the management of these companies which depend upon the advice of the Company Secretaries and Chartered Accountants, may not even aware of the provisions as to how to run the company, manage the company, maintain the records and file the returns. If a Company follows the advice of Company Secretaries and Chartered Accountants as to how to comply with the corporate regulations, then, it is good for the shareholders, management of the Company and the creditors dealing with the Company. However, in many closely held Private Limited Companies, the transactions are very typical and it is very difficult to resolve the disputes if any dispute goes to the Court or the Company Law Board. There can be some 10 group companies run by the same family and there can be umpteen financial dealings or the transactions among these companies keeping some objective in mind. Again, there are family companies or the closely held Private Limited Companies which will not record the transactions of the Company in its Books and on the contrary, these companies can benefit the individual shareholders in their individual names upon an understanding.

When a family company or the closely held Private Limited Company functions without any dispute among the shareholders or the groups in the Company, there may not be any difficulty. The problem starts when the trust is lost among the shareholders or the groups. It is likely that in any business concern or the closely held Private Limited Company, problems will come and the shareholders or the group start questioning others and there can be fears that their interests in the company is being oppressed. The Company’s property might have been registered in the name of an individual shareholder who is part of the management of the Company. The other shareholders or the people in the management might be silent at that time and the understanding to share the interests of the Company gradually may appear well for some time. But, if the problem starts and if the shareholder or other group intends to question a particular transaction and expresses the concern in the rights of the Company and the due management of the Company, then, the Court or the Company Law Board may not accept such a contention.

In most of the cases of Oppression and Mismanagement under section 397/398 of the Companies Act, 1956, there can be allegations against the transactions of the Company in the past. The Company Law Board may consider all the transactions, may look into equity at times, but, may not be able to set-aside an illegal transaction entered into between the Company and the Shareholder or between the Company and the outsider. The Company Law Board will look into the whole background of the transactions of the Company, the background of a particular sale transaction, the knowledge of the transaction, the financial statements of the Company and especially will consider the bonafides of the person or the group of shareholders raising the issue in a petition under section 397/398 of Companies Act, 1956.

Case-study:

In a typical case, the Company was silent about a transaction infavour of an individual happened some 15 years ago and the Company tried to question the past transaction in a petition under section 397/398 of the Companies Act, 1956. The Company Law Board has ruled infavour of the Company challenging the transaction occurred about some 15 years ago and an appeal was filed to the High Court under section 10 (F) of the Companies Act, 1956. After noting all the facts and analyzing the legal position under section 397, 398 and section 402 of the Companies Act, 1956, the High Court has set-aside the order of the Company Law Board relying on the knowledge and the issue of bonafides. The relevant observations of the Madras High Court are as follows:

Madras High Court in Comp. Appeal No.24 of 2009 between T. Vinayaka Perumal Vs. T. Balan & Others (CDJ 2011 MHC 2868):

“30. This proposition again cannot be disputed. In the present case, admittedly, sale deed was executed in favour of the 6th respondent in the year 1989, while purchasing the land on behalf of the company. The property was mortgaged by the 6th respondent in his individual capacity. The parties also came to know about the property being in the name of the 6th respondent, when the suit was filed and got settled by the 6th respondent, by redeeming the property. Therefore, it was not open to the company to challenge the sale, that too, in the Company Law Board, after lapse of 15 years. It seems that the object of moving the Company Law Board was, that the respondents 1 to 4 thought that the civil suit for claiming the property would not be competent, as the property not only was registered in the name of 6th respondent, but he acted as the absolute owner thereof throughout all these years, to the knowledge of the company and other Directors and members of the company.

39. The Company Law Board failed to notice that the material placed on record showed that the respondents 1 to 4 was estopped by their conduct to challenge the sale, as they permitted the 6th respondent to mortgage the property as collateral security by projecting him to be the owner. Even in the suit filed in the year 1995, the 6th respondent was shown to be the owner of the property mortgaged to the Bank, but no steps were taken by the respondents 1 to 4 to seek remedy of getting the sale set aside in favour of the 6th respondent.”

Note: the views expressed are personal and a view point only.

Oppression & Mismanagement: Prima facie case required before ordering any interim relief under section 397/398 of Companies Act, 1956?

Once the new Companies Act is enacted, companies are supposed to be more vigilant in complying with the corporate regulations and they may have to very often face litigation by the creditors and members before the National Company Law Tribunal. As per the clauses in the new Companies Bill, 2010, the National Company Law Tribunal can entertain applications from any member/s and creditor/s to order investigation into the affairs of the Company. On the same footing, the National Company Law Tribunal can entertain applications raising the issues of oppression and mismanagement even if the members are not holding a qualified percentage of shareholding to file the application. Now, under section 399 of the Companies Act, 1956, members holding 10% shares or any hundred members can file an application under section 397/398 of Companies Act, 1956 and the Company Law Board can pass any orders under section 397/398 of the Companies Act, 1956 in order to put an end to the matters complained of or in order to regulate the affairs of the Company. Once the new Companies Act comes into existence, then, even the members holding only 5% shares can file an application under section 397/398 of the Companies Act, 1956 along with an application asking for exemption from holding the requisite percentage of shares to seek relief on the ground of oppression and mismanagement. However, when it comes to creditor or creditors right to get a relief against the Company directly without investigation, due care is taken in the Act and the National Company Law Tribunal can only pass certain specific orders like restraining to act based on the resolution etc.

Even now, some complain that the provisions of oppression and mismanagement are getting misused and a frivolous litigation is often filed creating enormous problems to the Company or the majority shareholders in the Company. We all know the legal position under section 397/398 of the Companies Act, 1956 and the changes from to time. The changes in the legal position under section 397/398 of the Companies Act, 1956 are as follows:

1. Initially, the members are supposed to establish a strict case against the Company for getting relief. It is also known that the oppression alleged should be ‘harsh and burdensome etc.’

2. According to me, earlier, the interpretation of section 397/398 of the Companies Act, 1956 was infavour of the majority shareholders in the Company and technicalities were often get emphasized. There are findings that the disputed facts can not be decided by CLB, there is a proposition with regard to ‘consent’ under section 399 and there is so much emphasis on the issue of ‘continuity of the alleged acts’ and also limitations on the powers of CLB has also been frequently highlighted.

3. Now, there is no much emphasis on technicalities under section 397/398 of the Companies Act, 1956 and the majority is asked to reply to the allegations in the Petition even if the majority feels that there is nothing in the Petition and it is motivated one.

4. I have also read a finding that the CLB can pass orders under section 397/398 of the Companies Act, 1956 even when there is no oppression and mismanagement in ‘stricto senso’.

5. When it comes to appeal against the CLB’s order under section 10 (F) of Companies Act, 1956, in the past, much emphasis was laid on ‘substantial question of law’.

6. Now, it is settled that perversity becomes the ‘question of law’ and as such if the order passed by the Company Law Board under section 397/398 of the Companies Act, 1956 is contrary to facts or misinterpretation of law to the facts, then, appeal is very much maintainable under section 10 (F).

There are two views when it comes to interfering with the functioning or internal management of the Company. There is a view that nothing happens if liberal interpretation is placed by the adjudicating authority and if the majority in the Company or the Company is asked to supply the demanded information or the copies of the documents. There is another view that the Company maintains secrecy in view of its business interests or in the interests of the shareholders and as such, there should be a strong prima facie case against the Company or the majority in the Company while passing any interim relief under section 397/398 of Companies Act, 1956. These different views on interpreting section 397/398 of the Companies Act, 1956 continues to be there and it will also be continued even after the new Companies Act is enacted.

What normally now happens is that the CLB may easily entertain an application under section 397/398 of the Companies Act, 1956 and without going into the merits of the case, the CLB may ask the majority to supply the information sought by the minority shareholders or the applicants under section 397/398 of the Companies Act, 1956. Not agreeing with such proceeding and liberal process under section 397/398 of the Companies Act, 1956, the Calcutta High Court in AI Champdany Industries Limited & Others Versus Blancatex A. G. & Others, CDJ 2011 Cal HC 557, was pleased to observe as follows:

“Regulation 24 of the said regulations provide the powers to the board to order production of documents, as enumerated above. The qualification for filing an application under Section 397 and 398 of the Act is one tenth of the number of shareholders or 100 members whichever are less or by shareholders representing not less than one tenth of the issued share capital of the company provided that the applicants have paid the entire call amount. (See Section 399 of the Act). Therefore, a small minority of the shareholders of the company can file an application under those sections. Just because such a minority files such an application, does it follow that the company should provide inspection of their documents and provide copies to them, which they were otherwise not entitled to do under the other provisions of the Act and the Code of Civil Procedure and Evidence Act discussed above? Should the Company Law Board upon mere filing of an application exercise its power under regulation 24 asking the company to disclose the documents and provide copies to the applicants?

It is true, that when such an application is decided and is being heard it assumes the character of a proceeding in rem where creditors contributors, the government, the other statutory authorities may become involved. When the proceedings under these sections become open to the world, the affairs of the company are also open to view by the world and the Company Law Board has to pass orders accordingly. At what point of time, does the Company Law Board proceed to pass orders in the nature of those which are prayed for in this application? Our appeal court in Maharani Lalita Rajya Lakshmi M.P. – v – Indian Motor Co. (Hazaribagh) Ltd. and others, reported in AIR 1962 Calcutta 127 cited by Mr. S. B. Mookerjee, learned Sr. Advocate said that refusal to give access to or inspection of the books of account of the company was not oppression as a shareholder had no such right. Allowing such inspection, would, according to the court, be asking the directors to do something they were not obliged to do in law and granting something to the shareholders which they were not obliged to receive. That exposition of law is, in my opinion, very relevant to adjudge whether a company can be compelled to disclose the documents asked for in this case. A case before the Division Bench of the Delhi High Court in Rajdhani Roller Flour Mills Pvt. Ltd. – v – Mangilal Bagri and others, reported in 70 Company Cases, page 788, was cited by Mr. Sudipto Sarkar, learned Sr. Advocate. From the facts narrated in the decision, inspection of documents at the time of witness examination was in issue. In that context and rightly so the court said:

“The Calcutta case, in our opinion, would not apply in the given situation and we express our disagreement with the view that the right of inspection is limited to the board of directors under section 209(iv) and that right is not available to shareholders for inspection of the books of account of the company in the course of proceedings under sections 397 and 398 of the Act.”

Rightly so, because when a Section 397 and 398 proceeding is admitted and heard by examination of witnesses, it becomes a proceeding in rem, as I have said before. Once the proceedings partake of that character the court or the Company Law Board, after satisfying itself that there is a prima facie case can direct the company or persons in control of it to produce documents mentioned in regulation 24 of the Company Law Board Regulation 1991. It should do so only upon such conviction, because the qualification to file this kind of an application is 10% of the shareholders or 100 members whichever is less and shareholders having 10% of the value of shareholding. Then in that case each and every minority group of shareholders can by filing an application under Section 397, 398 compel the company to disclose its affairs to them, contrary to the other provisions of the Companies Act. Such order in my opinion can only be passed after the prima facie case is established. If the prima-facie case is not established then the principles in the case of Maharani Lalita Rajya Lakshmi M.P. – v – Indian Motor Co. (Hazaribagh) Ltd. and others, reported in AIR 1962 Calcutta 127 have to be followed. Furthermore, in my opinion, no such prima facie case was established by the applicants to warrant passing of an order for disclosure of some very secret internal documents of the company.

The following findings of the Company Law Board in its order dated 17th May, 2010 are reproduced herein below:

“14. On the submissions of either side, this Bench decided these applications as follows:

Though the respondents relied upon Mahatab Brothers case and Maharani Lalitha Rajalaxmi case to state that the shareholders are not entitled to the inspection of the documents, whereas the Hon’ble Delhi High Court, Division Bench, in Rajdhani Roller Flour Mills Pt. Ltd. – vs – Mangilal Bagri and ors. – Delhi High Court – DB (1991) 70 Company Cases Page no. 788, held that whenever any member or members filed petition under Sections 397 & 398 of the Act setting out the facts showing prejudice towards either the share holders or the company, they are entitled to inspect the documents relevant to the material facts mentioned in the petition because the documents are necessary to decide as to whether oppression and mismanagement is there or not. Here, in this case, the petitioners specifically stated that the R – 3 i.e. the director of R – 1 Company is none other than the brother of one of the directors of R-5 Company i.e. Jayanta Pujara, it being not disputed by the respondents, it can not be decided at this juncture whether the dealing done is at arms length distance or not unless and until the documents relevant to the dealings are looked into. Thereby the citations relied upon by the respondents are not applicable to the present case. As per Section 300 of the Companies Act, if any director is directly or indirectly interested in the contract or arrangement or dealings of the Company, his presence shall not be counted for the purpose of forming of quorum at the time of any such discussion, and if he `does vote, his vote shall be void. Indeed the director who knowingly contravene the provisions of this section shall be punishable as well, it being the position, R-3 having not disputed that he is brother of Jayanta Pujara who is one of the directors of R-5 Company, for time being it cannot be assumed that the dealing with R - 5 is at arms length distance. It is also requisite to see the documents concerned as to whether he participated in the resolution passed or contracts entered with R-5 Company. Likewise, it being said that the brother of R-3 is a director of ABLICO Company (UK), the same analogy is applicable in this aspect as well. In this scenario, it can not be said that the disclosure sought by the petitioners is not relevant and it also cannot be said that the disclosure is to collect evidence in favour of one party as long as there is cloud of oppression and mismanagement subsisting by the acts of the directors who were cited as respondents 2 & 3, hence, those material facts are very much required for adjudication of this case. Having the petitioners herein asked for inspection over number of documents, this Bench is of the opinion that some of these documents are not required”.

These findings do not show that any prima facie case under Section 397 and 398 has been appreciated by the Company Law Board. The Board, in my opinion, has adopted a wrong approach. The Board was required to see whether the existing pleadings and materials disclosed any prima facie case. In this type of an application, prima facie case means a case, which on the available evidence, has a reasonable likelihood of success at the trial. If such a case was established then it would have been proper, to exercise its powers under the law, to order disclosure of documents. The approach taken by the Board was that the prima facie case was to be established by ordering disclosure of documents, which was erroneous. I make it absolutely plain that the prima facie case to be determined is the prima facie case in the Section 397, section 398 proceedings. Such case has to be determined after filing of affidavits therein, on the available evidence. The appellants, Blancatex and Aldgate have not filed their reply. Their reply is to be filed within two weeks from date. Moreover, I pass this order assuming that the reasons given subsequent to releasing the operative part of the order dated 17th May, 2010 are reasons in support of the order. In this case, there is no point sending back the matter to the Company Law Board, as I had done in the earlier case because the reasons supplied later are also not adequate. Therefore, for mere absence of reasons there is no point in sending the matter back. But, the matter has to be sent back to the Tribunal, for the said reasons, for appreciating the prima facie case of the parties upon giving them a fresh hearing and to consider passing an order for disclosure of documents in the light of the observations made above.”

Discussion on proposed ‘Class Action’:

The proposed provision for class action litigation against the Companies in the new Companies Act is similar to ‘Public Interest Litigation’ or the class action litigation filed under Consumer Protection Laws. I am sure that there can be lot of litigation before the National Company Law Tribunal under the new Companies Act and especially there will be so much litigation asking for investigation into the affairs of the Company and also there will be definite rise in the applications seeking relief against the majority shareholders in the Company. Under the Companies Act, 1956, there was something wrong in the Company, the Central Government can be approached and they are supposed to deal with the illegality or the irregularity. What happens now with the new Companies Act is that the creditor or the members need not approach the Central Government in most the cases and these interested people can approach National Company Law Tribunal easily asking for investigation into the affairs of the Company or asking for relief against the Company subject to the express limitations.

While it is good to keep the companies under check and to make the companies to strictly comply with the corporate regulations, we must also be vigilant at the frivolous litigation and habitual litigants whose job is to litigate and to trouble their opponents. We can find so much habitual litigants now and as such, the National Company Law Tribunal may have to be very careful in dealing with this ‘Class Actions’. I am sure that there will be lot of discussion on this subject by the Constitutional Courts in the course. The ‘Class Action’ against listed Public Companies will definitely be on rise under the new Companies Act as many feel not satisfied with the functioning of SEBI and everyone knows the difficulties in approaching SEBI raising investor grievances and questioning the malpractices in any listed Company.

Note: the views expressed are my personal and a view point only.