Why 397/398 Disputes Arise In Closely Held Companies
Private Limited Companies are often run like proprietorship. Books are not maintained. Forms are not filed. Yet agreements on capital, profit sharing, and asset sale happen between groups. When trust breaks, majority hides behind technicalities. Minority claims oppression. Sometimes minority fabricates documents and removes directors by uploading forms. These disputes go to CLB under 397/398 because Civil Court takes 10-15 years and business gets destroyed.
The Big Question: Can CLB Cancel Contracts
This is the most debated power under Section 402. Can CLB set aside agreement between company and outsider. If CLB says "we cannot decide validity of contract, go to Civil Court", then 397/398 becomes useless. Example: Majority sells company asset to outsider at throwaway price. If minority has to file separate suit, asset will be gone. So CLB must have power to look into any transaction that is part of oppression and mismanagement.
Section 402 And Object Of CLB
Section 402 gives CLB power to make orders "for putting an end to matters complained of". It includes regulation of affairs, buy-out, even cancellation of transfers. Supreme Court in Madras Bar Association Vs Union of India, Civil Appeal 3717/2005 explained why tribunals exist. Courts have archaic procedure, appeals, technical evidence law. Tribunals are free from shackles and give speedy, cost-effective justice with Judicial + Technical member. Same logic applies to CLB. If it cannot touch contracts that are oppressive, then object of 397/398 fails.
Limits: Not All Contracts, Only Connected Ones
CLB cannot decide unrelated commercial disputes. But if contract is result of oppression or mismanagement, CLB must decide it. Earlier courts said "disputed facts need trial". Now approach changed. CLB can pass order even if oppression is not proved in stricto-senso. Appeal under 10F is also easier if order is perverse. So CLB must examine: Was agreement entered to oppress minority. Was price grossly inadequate. Was it without board approval. If yes, CLB can set it aside.
Conclusion
clb power set aside agreement contract section 397 398 must be interpreted widely to serve the purpose of 397/398. If CLB cannot cancel oppressive agreements, minority will have no effective remedy and will be forced into long Civil Court battles. Section 402 gives CLB authority to look into all transactions connected to oppression and mismanagement. As held in Madras Bar case, tribunals exist for speedy and technical justice without procedural hurdles. CLB should exercise this power, but only when contract is directly linked to oppression. This balance will protect minority rights while preventing misuse of 397/398.
