WHY MEMBERSHIP MATTERS UNDER SECTION 399 [
Oppression and mismanagement provisions are powerful. To prevent misuse, Parliament put threshold in Section 399.
If company has share capital, need 100 members or 1/10th, or 10% shareholding. If no share capital, need 1/5th members.
So first question in every 397/398 petition is: Do petitioners qualify as members. PROBLEM IN CLOSELY HELD COMPANIES
Records are messy. Shares transferred informally. Names not entered. Majority uses this to file preliminary objection on maintainability.
If we insist only on register under Section 41(2), many genuine stakeholders will be shut out. Companies Act must be read to protect, not defeat minority.
WIDER DEFINITION FOR OPPRESSION REMEDY
Karnataka HC in Balaji Textiles 1989 clarified scope.
Section 41(2) was meant for liability as contributory. "In writing" was added to avoid fraud.
But for rights under 397/398, Section 2(27) definition applies. It is comprehensive.
If allotment is proved by register and ROC filings, person is member. Cannot demand strict compliance with 41(2) for oppression petition. That would be misreading statute.
WHEN SHOULD QUALIFICATION BE JUDGED
Vijayan Rajes 2009 answered timing.
If we check membership only on date of filing, majority can first oppress, remove minority from register, then argue no locus. That is absurd.
Correct test: Did petitioners have qualification before acts of oppression began. This aligns with purpose of 397/398.
CLB cannot allow majority to create technical defense by their own wrongful act.
HOW CLB SHOULD HANDLE OBJECTION
Objection on membership can be raised anytime but best at start.
CLB should ask: Is there prima facie proof of shareholding. If yes, admit and let parties lead evidence.
If name missing due to oppression, CLB can direct rectification or treat as member for limited purpose. Object is justice, not technicality.
CONCLUSION
Membership test section 399 companies act 1956 is substantive, not just procedural. Karnataka HC rulings show membership must be understood in context of 397/398. Register is evidence but not conclusive. Timing is before oppression. This approach prevents majority from using record manipulation as shield. It ensures Section 399 works as filter, not as bar, and keeps 397/398 remedy alive for real victims of oppression.
