Object Behind 397/398: Protect Minority, Avoid Winding Up
Section 397/398 was created to protect minority shareholders and to put an end to oppression and mismanagement. The aim is to keep company running instead of resorting to winding up. Private and small companies contribute hugely to economy. If remedy under 397/398 is not effective, corporate growth suffers. But at same time, some negligible minority misuse it to harass majority. So CLB has to balance both.
The Technicality Problem: CPC Pleadings In CLB
Earlier parties used to plead pure technicalities before CLB. "Your petition does not follow CPC", "No evidence on affidavit", "Maintainability issue".
But intention of creating CLB was to avoid delay and strict CPC procedure. Special tribunals are meant for summary and flexible procedure guided by natural justice. Despite this, many still argued that strict rules of pleading and evidence apply.
Madras HC In Muthusamy 2011: CPC Does Not Strictly Apply
Company Appeal No.6 of 2009, K. Muthusamy & Another Vs S. Balasubramanian & Others, CDJ 2011 MHC 959 is clear.
HC said: Section 10E(4C) gives CLB powers of Civil Court for discovery, attendance, production, adjournments. Section 10E(5) says CLB shall be guided by principles of natural justice and act in discretion. Section 10E(6) empowers CLB to regulate own procedure.
HC compared Company Court Rules 1959 with CLB Regulations 1991. Company Court Rules say CPC applies. But CLB Regulations 1991 do not say CPC applies. Regulation 48 even allows Board to dispense with any regulation. Regulation 22 and 23 allow additional facts and counter-reply.
HC held: "Strict rules of pleading and proof as required in Civil Courts are not applicable to proceedings before CLB". Needle Industries was decided under old rules. After 1991 amendment, procedure is flexible.
What This Means In Practice
Flexibility: CLB can ignore technical defects if natural justice is followed. Evidence: Affidavits are enough. Cross-examination not mandatory unless needed. Pleadings: Additional facts can be added. Board can permit reply to co-respondent also to do justice. Focus: Substance over form. If oppression exists, CLB can pass order even if pleading is not perfect.
Conclusion
clb section 397 398 cpc applicability procedure is settled by Muthusamy 2011. CLB is not bound by strict CPC rules. It must follow natural justice and its own Regulations 1991. This flexibility helps dispose cases faster and protects minority without technical hurdles. However, basic fairness must be maintained. Parties cannot be taken by surprise. With NCLT coming, this principle will continue. Substance should prevail over technicalities, but abuse of process must also be checked. That is the real purpose of 397/398.
