Difference between error and oppression
Directors manage company and may commit errors. Public companies have SEBI and stock exchange oversight. Private companies have fewer checks. But error or imprudent decision is different from oppression. Section 397/398 is meant for qualified minority to get relief when majority acts oppressively. Courts have repeatedly said test is "harsh, burdensome and wrong". It must be mala fide and for collateral benefit. If every transaction without perfect documentation is called mismanagement, business will stop. CLB must distinguish.
Four points clb must consider
While dealing with 397/398, Board must keep 4 things: 1. Petitioners must qualify under 399. 2. Oppression and mismanagement are not defined, but must be harsh and wrong. 3. It is difficult to list which acts are harsh. 4. Board must weigh facts, law and counter. This shows jurisdiction is not mechanical. In practice minority with internal knowledge can frame allegations easily. But CLB must see motive and effect. If minority participated in decision, they cannot complain later. That would be taking advantage of own mistake.
Risk of misuse in closely held companies
In private companies, disputes are personal. Minority knows all transactions and can allege mismanagement. If every such allegation succeeds, majority will be paralyzed. Object of Act is to provide relief, not to weaponize information. Therefore CLB must look at substance. Was there diversion? Was minority excluded? Was there prejudice? If not, petition fails even if some irregularity exists. This protects company and employees too.
Incable net principle on concrete proof
In Incable Net 2008, SC refused relief because petitioners failed to establish oppression or mismanagement. Court relied on V.S. Krishnan case and Halsbury. Conduct must be oppressive in true sense. Without that, section 402 powers cannot be used. This is important for 2010 practice. It tells minority that vague claims based on privileged information will not work. It also tells majority that real oppression will be dealt with.
Conclusion
Acts of mismanagement 397 398 harsh burdensome wrong must be proved, not assumed. Not every board act gives right to minority. SC and CLB must ensure 397/398 is used for genuine protection. In 2010, this balance is key. Technical mismanagement without prejudice should lead to direction or audit, not drastic relief. Only real oppression deserves intervention.
