Oppression And Mismanagement: Proof Problem For Minority
To maintain 397/398, petitioner must show oppression and mismanagement. It need not be continuous now. Even one act prejudicial to minority is enough.
But proving is hard. Minority has no control. They depend on financial statements and ROC filings. Majority controls records. If CLB says "prove it first, then we will see", minority can never win. Law must give CLB tools to find facts.
CLB Can Call For Information And Order Audit: Legal Basis
CLB is not Civil Court. It is a tribunal meant for speedy relief. Section 402 allows any order to bring end to matters complained. Section 403 lets CLB regulate procedure.
Section 237(b) is key. If CLB is of opinion that circumstances exist, it can order investigation. K.Muthusamy 2011 says this power is administrative and can be used suo motu in 397/398. CLB must only be satisfied that clauses (i) to (iii) are present.
Further, Section 406 imports Sections 539-544. These give powers to probe past conduct, examine persons, and call records. Schedule XI modifies them for 397/398. So CLB has full power to ascertain information.
Why This Matters In Real Cases
In many companies, majority diverts funds through related parties. Financials show profit but cash is missing. Minority suspects but has no proof.
Without CLB’s power to order audit, minority is remediless. With this power, CLB can appoint independent auditor, freeze assets, or direct inspection. This balances the scales. Majority cannot say "come with proof" when they themselves hide proof.
Limits And Safeguards
Power is not arbitrary. CLB must form opinion based on material. It cannot order roving enquiry. In K.Muthusamy, HC checked if circumstances existed. Also, order must be necessary to prevent further oppression. If minority’s case is weak, CLB can refuse. But once prima facie case is there, CLB should not hide behind "you prove first".
Conclusion
CLB powers ascertain information oppression mismanagement are essential for 397/398 to work. Madras HC 2011 made it clear CLB can order investigative audit and use 406 powers. Normal CPC does not bind CLB. Purpose is to protect minority and company. At Nathan & Associates we plead for 237(b) audit early in 397/398. That often exposes truth and leads to settlement.
