Why 397 398 petitions are preferred
In closely held companies, shareholder disputes are difficult to resolve without settlement. Civil Court can be approached but it is slow and limited to legal issues. Because adjudicating company disputes requires specialization, shareholders who are qualified under section 399 prefer to approach Company Law Board under section 397/398 of Companies Act 1956. CLB is now entertaining petitions without strict technicalities and focuses on substance. However, unlike Civil Court which looks only at rights between parties, CLB has wider responsibility. It must see overall health of company and not just personal grievances of petitioner.
Public interest element after 1963 amendment
After amendment by Companies Amendment Act 1963, sections 397 and 398 specifically refer to public interest. Affairs of company must be conducted not only for profit of members but also in manner not prejudicial to public interest. Bombay High Court in Bhalchandra Dharmajee Vs. Alcock Ashdown & Co Ltd 1972 42 CC 190 explained this clearly. Modern corporation affects economic life of community. Society depends on corporate enterprise for jobs, goods and growth. Therefore stability and efficiency of company is matter of public concern. CLB cannot ignore this while deciding oppression and mismanagement. The element of public interest brings employees, creditors and community into picture.
Responsibility of clb to look beyond parties
Parties in 397/398 petition usually talk only about their shareholding and rights. Rarely do they mention public interest. But CLB has duty to ascertain all issues like creditors, assets, liabilities, employees and overall impact. Like Company Court in winding up, CLB must make efforts to find truth even if parties conceal facts. In Alcock Ashdown case, Court said interest of employees for fair wages, continuity and job security must be considered. Interest of creditors and shareholders must also be balanced. Destroying a company with 87 years of expertise may be against public interest, but keeping it alive to incur more liabilities is also not proper. Therefore CLB must investigate and find middle path.
Balancing shareholders interest with public interest
CLB’s order under section 402 must put an end to matters complained of and regulate affairs. This includes protecting company as going concern if possible. In Alcock Ashdown, Bombay HC appointed special officer to preserve assets and investigate if company could be resuscitated before deciding winding up or management change. This shows CLB must think beyond immediate dispute. Employees’ livelihood, supplier payments, tax dues and community impact all matter. If company is destroyed, public suffers. If company is kept alive unfairly, creditors and minority suffer. So CLB must balance and pass order that serves justice to all.
Conclusion
Public interest section 397 398 companies act 1956 is not an empty phrase. After 1963, CLB must consider impact on employees, creditors and economy while deciding oppression petitions. Parties may hide facts, but Board has responsibility to look deeper. The Alcock Ashdown judgment reminds that company is social institution, not just private property. Therefore CLB’s role is to protect minority and also ensure company serves larger public interest.
