Why private companies face 397 398 often
In private limited companies, shareholders are also directors. Disputes become personal. When substantial shareholders fall out, oppression follows. Winding up is not preferred because company is going concern. So parties rush to CLB. Remedy is preventive. But private deals often have Share Purchase Agreements with arbitration. When sale goes wrong, both SPA breach and oppression are alleged. This creates forum conflict and maintainability questions.
Facts showing practical problem
Family "D" sells ABC Pvt Ltd to "F" via SPA. Shares transferred, control given. "F" allegedly breaches payment terms. "D" says transfer invalid and invokes arbitration. At same time "D" files 397/398 alleging mismanagement by "F". "F" says "D" is not shareholder, so no standing. Also arbitration is already on. CLB must decide whether to proceed. Unlike liquidation, 397/398 does not automatically consider creditors. But their interest cannot be ignored. If company is mismanaged, all suffer. So technical objection alone cannot end inquiry.
Jurisdiction and arbitration overlap
Arbitrator decides contract: was SPA breached, is transfer valid. CLB decides corporate governance: is there oppression, mismanagement. Two forums, two subjects. But they overlap because title depends on SPA. CLB cannot give finding contrary to Arbitrator. But it can ask: pending arbitration, who is managing company? Is management oppressive? Can interim protection be given? If "D" is out, they cannot claim minority rights. But if they show they are still beneficial owners, CLB may look deeper. This requires careful case to case analysis.
My view on entertaining petition
Company Law Board should not shut doors mechanically. If justice warrants, it can entertain. It need not "put an end" immediately because arbitration will decide title. But it can monitor company, appoint observer, or restrain siphoning. This uses wide powers under 397/398 without encroaching arbitration. If arbitration later upholds transfer, CLB can dismiss. If not, CLB can grant relief. This pragmatic approach avoids multiplicity and protects company. Stakes are high in such cases, so instant dismissal is not proper.
Conclusion
Clb jurisdiction arbitration share transfer oppression issues are increasing in 2010. Case study of D vs F shows need for balance. CLB must respect arbitration but also protect company. Maintainability depends on shareholder status at time of petition. If not shareholder, petition fails. If dispute is genuine, interim measures are justified. This ensures 397/398 serves object without conflicting with other forums.
