Why ascertaining oppression is complicated
Proceedings under section 397/398 involve many aspects like meaning of oppression, scope of powers under section 402, issue of deadlock, application of partnership principles in closely held companies, requirement of consent under section 399, maintainability and procedure. The law on these points is more or less settled by Constitutional Courts. But when it comes to facts, every case becomes complicated. The remedy is expected to be effective and speedy because business and investments are involved. However due to procedural difficulties and concealment by parties, cases often get delayed. At the same time, while some people misuse 397/398, there are also cases where real grievance of minority is not addressed properly. Hence CLB has to strike a balance.
The judicial test laid down
The Calcutta High Court in Bagri Cereals Pvt Ltd Vs State, 1998 98 CalWN 617 gave useful guidance on how to ascertain oppression. The Court said there is no statutory definition and it is left to the Court to decide on facts whether oppression exists. The conduct must be burdensome, harsh and wrongful. It must be shown as a consecutive set of facts and not as an isolated event. Mere lack of confidence between parties will not prove oppression. There must be an element of lack of probity or unfair dealing affecting the rights of a member as a shareholder. Therefore the test is qualitative and not quantitative.
Isolated act vs continuous conduct
A single technical breach of company law may not amount to oppression. But even a single wrongful act can be treated as oppression if its effect continues over a period of time. For example, if minority is removed from the Board and is continuously excluded from management for years, that will be continuous conduct. The CLB must look at the whole picture and not at individual incidents in isolation. Since oppression cannot be defined in abstract, the Board must apply the harsh and burdensome test to the specific facts before it.
Corporate compliance is not a shield
Many times majority argues that since all minutes and ROC filings are proper, there is no oppression. That argument is not correct. Proper compliance on paper does not mean there is no oppression in reality. Majority can still divert funds, deny information, or exclude minority while keeping records clean. Similarly, poor compliance alone does not prove oppression. Therefore evidence in 397/398 cases must focus on the actual prejudice caused to minority such as denial of dividends, diversion of assets, or unfair treatment.
Role and responsibility of clb
The power of CLB under section 397, 398 and 402 is wide, equitable and discretionary. The main object is to put an end to matters complained of and to regulate the affairs of the company in future. But this power must be exercised with caution. CLB must ensure that all necessary parties are heard, principles of natural justice are followed, and orders passed are reasonable. Speed is important but not at the cost of fairness. The Board must also ensure that the remedy is not used to harass the majority.
Conclusion
The test for oppression under section 397 is harsh and burdensome conduct affecting minority rights. As per Bagri Cereals, it must be proved through consecutive facts and not isolated incidents. Corporate compliance records are relevant but not conclusive. The CLB has to examine substance, look at the effect on minority, and pass orders to regulate the company. There can be no rigid rule. The purpose of section 397/398 is to provide an effective remedy to minority without allowing it to become an instrument of oppression itself.
