Oppression is not defined, it is ascertained from facts
Section 397 and 398 of Companies Act 1956 were enacted to give protection to minority shareholders against the oppressive acts and mismanagement by the majority. However, the statute does not provide any definition for the word "oppression". Because of this, every petition has to be decided purely on the facts and circumstances of that particular case. Over the years, High Courts and Supreme Court have laid down principles but applying them is not easy. In practice we see two problems. First, section 397/398 is sometimes misused by disgruntled shareholders to pressurize majority. Second, genuine grievances of minority are often side-lined on technical objections. Therefore the Company Law Board has a very important role to examine the conduct of affairs as a whole and not in a piece-meal manner. Proper evidence through affidavits and proper representation is extremely important because without that CLB will find it difficult to come to a conclusion, especially when records are voluminous and presiding officers keep changing.
What counts as oppression: harsh and burdensome test
The consistent judicial view is that for an act to be called oppressive, it must be harsh, burdensome and wrongful in nature. The Hon’ble Calcutta High Court in Bagri Cereals Pvt Ltd Vs State, 1998 98 CalWN 617 explained this principle in detail. The Court observed that it must be shown that the conduct is oppressive and the events should form a consecutive set of facts which would lead the Court to conclude that the company is being conducted in a manner oppressive to some members. An isolated act by itself will not be sufficient to infer oppression. Similarly, mere lack of confidence between shareholders will also not amount to oppression. What is required is an existing element of lack of probity or lack of fair dealing in relation to the rights of a shareholder. In short, the test is about the quality and effect of the conduct, not just about technical violations.
Compliance does not mean no oppression
It is a common mistake to think that if a company is following all corporate formalities then there can be no oppression. That is not correct. A company may maintain perfect minutes, registers and file all documents with ROC and still indulge in serious acts of oppression like siphoning of funds, denial of dividends, exclusion of minority from management or unfair allotment of shares. On the other hand, a company may be irregular in compliance but may not be oppressive at all. Therefore CLB cannot go only by the form. It must look at the substance and the real effect on minority shareholders. This is why parties must place clear evidence on record and explain how the acts complained of are affecting their rights as members.
No hard and fast rule: facts decide
As held in Bagri Cereals, no hard and fast rule can be laid down as to what will amount to oppression. Oppression cannot be defined in a straitjacket formula. It depends entirely on facts of each case. Sometimes a series of irregularities may not amount to oppression. At other times, even a single act may be treated as oppression if its effect is continuing and burdensome. The duty of the CLB is to examine the entire matter, come to a conclusion on facts, and if it finds oppression or mismanagement, it must pass appropriate orders under section 402 to bring the matters complained of to an end and to regulate the affairs of the company in future.
Practical challenges before clb
Dealing with 397/398 petitions is a tough job for CLB. There is always an expectation of speedy disposal because huge stakes are involved. But in reality there are delays due to concealment of facts by parties, voluminous records, and frequent transfer of presiding officers. Further, the power of CLB under section 402 is very wide and equitable. It must be exercised with great responsibility by hearing all necessary parties and following principles of natural justice. At the same time, CLB must be careful to filter vexatious petitions at the threshold so that the provision is not used as a tool for harassment.
Conclusion
To ascertain oppression under section 397 of Companies Act 1956, the focus must be on whether the conduct is harsh, burdensome and wrongful and whether it forms part of a continuous course of action. The judgment in Bagri Cereals makes it clear that there is no rigid definition and everything depends on facts. Mere compliance with corporate law does not prove absence of oppression. The CLB must look at substance over form, protect the minority, and at the same time prevent misuse of the remedy. Ultimately, the goal is to pass reasonable and just orders that put an end to the matters complained of.
