Object Of 397/398 And The Balance Problem
Section 397/398 gives minority right to approach CLB for preventive and remedial measures against oppression and mismanagement. Only shareholders qualified under Section 399 can file. Courts have given broad guidelines but "oppression" is always subjective. CLB is criticized both ways. Minority says CLB is ineffective. Majority says CLB is misused to stall company. So every case needs balance. Business must go on, but oppression must stop. That is why interim relief is the most sensitive area.
Can CLB Stop AGM Or Resolution: General Rule
Shareholders often ask CLB: stay AGM, stay removal of director, stay resolution. Is it justified. No straight-jacket formula. Basic test is prima facie case of oppression or action prejudicial to public interest. Without that, no injunction. Courts also say shareholders can watch proprietary interest, but cannot interfere in day-to-day decisions. If it is civil right, go to Civil Court. If it is oppression in company affairs, CLB can intervene.
N. Ram Vs N. Ravi 2011 Madras HC: Key Guidance
CDJ 2011 MHC 1037 is important. Facts: EGM was called. Petitioners sought injunction against implementing decisions.
Madras HC held: CLB cannot issue injunction against decision to be taken by shareholders unless prima facie finding that decision is prejudicial to public interest or company at large.
Court noted 3 points. First, earlier CLB itself refused relief on succession issue and left it to Board and shareholders. Second, respondents had not even filed counter. No urgency to pass order on 18th May. Order could be made subject to final decision. Third, LIC Vs Escorts says CLB cannot interfere with functioning of company lightly. HC also said: if civil rights are affected, remedy is civil suit, not 397/398. And resolution was not against earlier CLB order because earlier order left succession to shareholders.
When Will CLB Grant Interim Injunction On Meeting/Resolution
From case law, CLB will intervene only if: Resolution is ex-facie illegal, fraudulent, or oppressive. Example: removing all minority directors overnight, diluting shares to wipe out minority.
Meeting notice itself is illegal: no notice, wrong quorum, to push through oppressive agenda.
Irreversible damage will happen if meeting goes ahead.
If issue is only "we disagree with business decision", CLB will not stay. It will say let shareholders vote. After that, if oppression is proved, CLB can give other relief.
Practical Tips For Filing Minority must show: notice is bad, agenda is oppressive, and irreparable harm. Attach documents. Do not ask blanket stay of all meetings. Ask targeted stay of specific resolution.
Majority must show: meeting is in ordinary course, agenda is disclosed, and no prima facie oppression. Also argue balance of convenience. If stay granted, company business will suffer.
Conclusion
Section 397 398 interim injunction general body meeting is granted sparingly. N.Ram 2011 says no injunction without prima facie finding of prejudice to company or public interest. CLB must not become super-board. At Nathan & Associates we advise: attack the oppressive resolution, not the meeting itself, unless meeting itself is the tool of oppression.
