Companies act 1956 is sound but implementation gap
Companies Act 1956 is one of the finest legislations. Each provision has logic. Listed public companies follow it well due to SEBI and stock exchange supervision. Shareholders get annual accounts, directors report, auditor report. Private and closely held companies are different. There is no "family company" in Act, but reality is family control. Articles give liberty but when investment comes, shareholding changes and trust breaks. Then one group tries to dominate. Business secrets and concealment become weapons. Even without real oppression, qualified minority under section 399 uses section 397/398 to trouble majority. CLB has wide powers but also limitations. Judgments are lengthy because stakes are high. Result is delay and frustration for both sides. Concerns of majority shareholders
Majority feels they rely on majority rule but get troubled by minority allegations. They say minority uses knowledge of secrets to file 397/398 even when no oppression. Buying out minority is hard due to unreasonable valuation and funds. They feel any allegation damages company easily. They believe Act gives no remedy to majority despite AGM powers. They do not want to appear powerless before CLB. If both majority and minority file, deadlock is presumed and consequences follow. Filing of fictitious forms with ROC is big headache and no clear remedy to remove them from MCA portal. They also feel 397/398 applications are entertained loosely and pendency itself harms company functioning.
Concerns of minority shareholders
Minority also feels remedial measures are not effective. Delay in getting orders is major issue. Even when CLB passes order, majority reads between lines and implementation is tough. Powers of CLB are expressly limited, so they must run to multiple forums for same dispute. Civil court is avoided because procedure is prolonged. Exit option is also unfair as shares are undervalued. So minority feels trapped. They want quick, preventive relief but system does not deliver.
Fictitious forms and nclt way forward
Biggest concern in 2010 is fictitious forms uploaded on MCA. ROC tells companies to go to CLB or Court even for apparent illegality. This is absurd. Simultaneous proceedings in CLB, Civil Court, Arbitration are common. Companies Bill 2009 proposes bar on civil court jurisdiction like SARFAESI, but that may not work easily for company matters. NCLT constitution is pending with SC directives. What is needed are active, knowledgeable and independent presiding officers. Difference in culture is visible: shouting in CLB vs decorum in HC. NCLT will discharge HC functions. It can never be HC, but must be equally effective. Without enforcement, contempt power and speed, NCLT will also fail.
Conclusion
Section 397 398 company law board concerns shareholders 2010 are real for both majority and minority. Law is good but remedy is not. Fictitious ROC filings, delay, implementation and multiple forums must be fixed. NCLT must learn from CLB failures and HC standards. Only then 397/398 will serve true object of protecting minority without harassing majority.
