Need for proper interpretation in 397 398
Proceeding under section 397/398 of Companies Act 1956 is complicated and stakes are high. Minority may misuse provision to trouble majority even without illegality. Majority may use technicalities to deny legitimate rights of minority. Courts have given many judgments and settled principles, but CLB still faces dilemma. Interpretation must be based on legislative intention gathered from wording, objects, and purpose. If literal reading is taken, Board may refuse relief on technical ground. But object is to protect minority and regulate company. Therefore interpretation must be purposive, not technical, while respecting law and natural justice.
Bombay hc guidance in ravi kiran agarwal case
Hon’ble Dr. Justice D.Y. Chandrachud in Company Appeal No.51 of 2009, Ravi Kiran Agarwal & Others Vs. Moolchand Shah & Others, gave important guidance. Issue was section 405 power to implead additional respondents. CLB had held that "any other person" in section 405 must be confined to persons in section 402(e) using ejusdem generis. Bombay HC disapproved this. Court said section 402 is not exhaustive and section 405 operates in different field. Ejusdem generis has no application here. "Any other person" must be given plain meaning to include any person whose interest will be affected by order under 397/398. To hold otherwise would violate natural justice.
Scope of section 405 explained
Section 405 allows CLB to implead Managing Director, Director, Manager or any other person if sufficient cause is shown. HC held this power is wide. It is not restricted to parties with agreement under section 402(e). Where relief sought under 397/398 affects third party, impleadment is warranted. It may be necessary for full, final and complete adjudication. CLB itself earlier said shareholders, employees, creditors may apply. That residual discretion shows 405 cannot be read narrowly. Power must advance object of 397/398, which is to end oppression and mismanagement and regulate company.
Why technical interpretation fails in oppression cases
In 397/398, parties often raise technical objections like disputed facts cannot be decided in summary procedure, or relief not listed in section 402. If Board accepts this, illegal agreements or acts may continue. Correct approach is to see legislative intent: protect minority, ensure proper management. Interpretation should not defeat object. As HC said, nothing except clear statutory provision should restrict natural justice. When third party interest is affected, that party must be heard. This avoids multiplicity and ensures effective order. Technicalities should not shut doors.
Conclusion
Interpretation section 397 398 companies act 1956 must be wide and purposive. Bombay HC 2009 in Ravi Kiran Agarwal clarifies section 405 and also underlying principle for 397/398. CLB has wide powers and must use them to do complete justice. Restricting "any other person" to section 402 is wrong. In 2010, as we move towards NCLT, this approach of substance over form is needed. Law must protect both minority and company, without allowing technicalities to defeat justice.
