Complications in 397 398 proceedings
A proceeding under section 397/398 of Companies Act 1956 is inherently complicated. In closely held private companies, trust breaks down and groups fight for control. Remedy before CLB is important because civil court has bar and winding up is not favored for going concern. But many feel remedy is not effective, while majority feels they are troubled unnecessarily. Even future NCLT may face same issues. Board must consider interest of company, business, creditors and impact of orders. So CLB cannot decide based on single irregularity alone. It must look at larger picture. This makes every case fact intensive and sensitive.
Problem of repeated amendments in cp
Big difficulty is amendment of company petition. While CP is pending, majority may take new objectionable actions. Practice is to file amendment for each new act. If there is only one development, amendment is fine. But if majority keeps doing many acts to frustrate minority, insisting on amendment each time will delay case for years and increase cost. For largely held public company, CLB is also reluctant to pass drastic orders affecting day to day affairs. Taking advantage of this, majority may continue acts. If technical requirement of amendment is strictly enforced, object of 397/398 "to put an end to matters complained of" will be defeated. Minority will spend all time and money on amendments.
Substance over technicalities approach needed
CLB regulations are not as technical as CPC. They are based on logic and reason. In my opinion CLB should look at substance over technicalities. It is responsibility of Board to ascertain all contentious issues from pleadings and documents. Even if new acts are not formally amended, if they arise from same dispute and are placed on record, CLB can consider them for effective disposal. Professionals must assist Board to identify issues. Requiring formal amendment for every act will make 397/398 remedy illusory. Equity, reason and logic must guide Board instead of procedure alone.
Relief to respondent also permissible
Another technical issue arises when majority files reply with grievance against minority and seeks relief. Technically petition is by minority. But section 397/398 confers wide power subject to section 402. Precedents and wording suggest CLB can grant relief to respondent also if facts warrant. Purpose is to regulate company and end dispute completely. If Board only looks at petitioner and ignores counter grievance, dispute will continue. Therefore CLB can ascertain all contentious issues and give findings against any party based on material. This ensures finality.
Conclusion
Amendment company petition 397 398 companies act 1956 should not become tool to delay. CLB must focus on substance, not technical amendment for every new act. It must look at equity and logic and decide all issues arising from dispute. In 2010, with increasing shareholder conflicts, this approach will make 397/398 effective. Technical disposal defeats object of Act. Board must use wide powers to protect company and all shareholders.
