This understandable attitude can lead to difficulties. When you form a corporation and take on investors, you should be ready to let your baby go. The corporate entity is now the owner of the idea, which means all shareholders have a say in how issues are run. The truth that you were the 1 that came up with the thought is totally irrelevant. If this sounds unfair, you might want to take into account other techniques to raise money instead of selling shares in the entity.
Archive: January 2012
The study of numerous judgments of High Court and Supreme Court under section 397/398 of Firms Act, 1956 speak volumes about the complications in dealing with the instances of ‘oppression and mismanagement' under section 397/398 of Companies Act, 1956. There were numerous judgments under section 397/398 explaining the powers of Organization Law Board, meaning of ‘oppression', powers under section 402, the powers of Organization Law Board in passing orders under section 402 in order to regulate affairs of the company in future, the responsibility of the board to hear all the essential parties to the proceeding, the issue of public interest, the problem of dead-lock, the issue of applying the principles of partnership in closely held private businesses, the scope of section 399, the issue of granting ‘consent' by members, the problems of maintainability and the procedure to be followed by the Corporation Law Board etc. In my opinion, the law governing section 397/398 is clearly understood though facts in most of the cases complicate the physical exercise of the Corporation Law Board in passing suitable orders or orders to regulate the affairs of the Business. If the procedural component and the execution portion are well addressed, then, I feel the remedy before Company Law Board for the minority shareholders against oppression by majority can really be useful and effective. The remedy need to be effective and speedy in view of the stakes involved in several circumstances. Even though in some instances, section 397/398 of the Companies Act, 1956 is being misused, in some cases, the actual grievance of the minority is becoming side-lined on technicalities as some might feel. While the law laid-down by the Constitutional Courts becomes binding precedent on a certain point or the subject, in my opinion, the Business Law Board can pass any orders under section 397/398 and section 402 of Businesses Act, 1956 based on facts and circumstances of the case with the intention of regulating the affairs of the Company and putting an end to the matters complained of finally. There can not be any hard and quickly rule when it comes to construing ‘oppression' and it depends upon the facts and circumstances of the case. A company may possibly not be adhering to the required corporate practice, but, it could not have really practiced the acts of oppression and mismanagement. A company may possibly be nicely adhering to the corporate practice through minutes, registers, filing documents with the Registrar of Firms (ROC) and still it may possibly have indulged in serious acts of oppression and mismanagement. In all circumstances under section 397/398 of the Businesses Act, 1956, the parties concerned need to offer all the necessary evidence through affidavits and ought to ensure proper representation prior to the Business Law Board from time to time. Due to the fact, it would be hard for the Company Law Board to review issues from the voluminous records and it is much more so with the transfer of presiding officers. Despite the expectancy of speedy disposal of situations and effective orders from time to time in order to regulate the conduct of the affairs of the Company and to secure guard the interests of the members, due to specific inevitable difficulties, the proceedings could get unreasonably delayed. Dealing with a case of oppression and mismanagement is truly a tough job and there would be lot of concealment by the parties concerned in a lot of instances.
There were many judgments as to how the word ‘oppression' under section 397 of the Act is to be construed. It is settled that to construe an act as ‘oppressive', it really should be harsh and burdensome and it is becoming continuously referred and settled. Again, only based on facts, it can be construed as to whether or not a particular act of the majority is ‘harsh' or ‘burdensome'.
No lis lies when there is no live claim or the trigger of action and it is settled legal principle. The requirement of having a live claim for looking for relief is also been highlighted by the Hon'ble Apex Court while dealing with the scope of powers of Chief Justice under section 11 of Arbitration and Conciliation Act, 1996. Again, there were a lot of judgments under SARFAESI Act, 2002 on the issue of cause of action regardless of the specific provision in the Act that the borrower can approach the Debt Recovery Tribunal under section 17 of the SARFAESI Act, 2002 if he has any grievance at the Bank's action. Thus, the problem of trigger of action and law of limitation is very significant in any lis. Section 397/398 of the Organizations Act, 1956 gives a remedy to the minority shareholders or the shareholders qualifying under section 399 to approach the Business Law Board and the Corporation Law Board has wide powers in passing orders in order to put an end to the matters complained of or in order to regulate the affairs of the Corporation. While section 399 of Companies Act, 1956 deals with the issue of qualification, section 397/398 itself speaks about ‘cause of action' and the problem of limitation. Dealing with the problem of ‘cause of action' and law of limitation under section 397/398 of Organizations Act, 1956 is infact very complicated. It is settled that a minority shareholders can question the harsh and burdensome acts of the majority in the Business. It is also settled that the oppression or the mismanagement sought to be alleged need to be a continuous 1 if the minority should approach the Corporation Law Board under section 397/398 of the Businesses Act, 1956. In reality, the issue of ‘cause of action' and law of limitation can not be separated whilst dealing with the law under section 397/398 of the Companies Act, 1956 and the issue of limitation has little significance. The provisions of law of limitation will have no application to a petition under section 397/398 of Companies Act, 1956. Its all depends upon the facts and circumstances of the Case.
There are distinct views as to how section 397/398 of Firms Act, 1956 is to be interpreted when it comes providing a remedy to the minority shareholders. There is a view that unless there exists act which is harsh and burdensome in the corporation against the minority, minority is not entitled for any relief under section 397/398 of Businesses Act, 1956. There is another view that even if there is no oppression or mismanagement in the Company in stricto senso, the Company Law Board can still pass suitable orders under section 402 of the Act in order to regulate the affairs of the Organization and in order to put and end to the matters complained of. It is also settled that there can not be any difficult and rapidly rule even though entertaining and passing appropriate orders in a petition by the minority against the majority under section 397/398 of Organizations Act, 1956. Going by the precedents and the complications in corporate affairs, it can be understood that an order of the Business Law Board under section 397/398 of the Organizations Act, 1956 need to be reasonable, towards the object of the chapter, in adherence to the principles of natural justice. This is a very complicated proceeding and it acts as a sharp weapon in the hands of minority shareholders to protect their interests and also the provisions of the chapter can conveniently be misused with ulterior motive. Therefore, the Business Law Board carries a greater responsibility even though entertain petitions under section 397/398 of Firms Act, 1956. Coming back to the problem of ‘cause of action' and the issues of limitation, the Hon'ble High Court of Delhi, in , was pleased to observe as follows: