MEMBERSHIP IS THE GATEKEEPER UNDER SECTION 399
Section 397/398 gives remedy to minority against oppression and mismanagement. But not every shareholder can file. Section 399 prescribes qualification. For company with share capital: 100 members or 1/10th members whichever less, or 10% issued share capital. Calls must be paid. For company without share capital: 1/5th members.
Thus membership is crucial. Without satisfying 399, petition is not maintainable.
TECHNICAL MEMBERSHIP VS REAL MEMBERSHIP IN FAMILY COMPANIES
In closely held and family companies, records are often not updated. Company may run like proprietorship. Actual beneficial owners may not be in register of members.
Majority usually raises preliminary objection: petitioners are not "members" as per company records. If court takes technical view, genuine minority will have no remedy.
So CLB must look beyond register in some cases. Object of 397/398 is to protect minority, not to close doors on technicality.
KARNATAKA HC: SECTION 41 VS SECTION 2(27) MEANING OF MEMBER
Karnataka HC in Shri Balaji Textile Mills Pvt Ltd Vs Ashok Kavle, 1989 66 CompCas 654 explained.
Section 41(2) says person who agrees in writing and whose name is entered in register is member. This was amended in 1960 to add "in writing" to prevent fake entries to fasten liability.
But Section 2(27) gives comprehensive definition of member. For 397/398/399, we must look at Section 2(27), not restrict to Section 41(2).
Court held: If shareholder proves allotment by register and statutory returns filed with ROC, he is member for 397/398. Majority cannot say "not in register under 41(2)" and defeat petition. Membership for oppression remedy has wider meaning.
TIME OF TESTING MEMBERSHIP: BEFORE ACT OR AT FILING
Another issue is when to test qualification. Majority argues test at date of filing.
Karnataka HC in Vijayan Rajes Vs MSP Plantations, 2009 ILR Kar 3576 rejected this.
Court said: Test is whether petitioners had requisite membership before acts complained of. If majority oppresses and removes minority from register, and then we say they are not members to file, it defeats entire purpose of 397/398.
Section 399 must be interpreted to further object of minority protection. Technical approach will leave oppressed minority remediless. PRACTICAL POINTS FOR FILING Attach evidence: Share certificates, allotment letters, ROC forms, dividend warrants. Explain if name not in register: Show why and how majority caused it. Plead qualification as of date before oppression began.
CLB has discretion to look at substance over form.
CONCLUSION
Section 399 membership 397 398 qualification cannot be read narrowly. As per Balaji Textiles, member for 397/398 means person with shareholding proved by records, not just 41(2) register entry. As per Vijayan Rajes, qualification is tested with reference to time before oppression, not after removal. This prevents majority from defeating remedy by removing names. CLB must balance technical compliance with equitable purpose of 397/398 to ensure genuine minority gets hearing.
