Role of section 399 as gateway
Section 397/398 gives preventive relief to minority against oppression and mismanagement. But to file petition, shareholders must qualify under section 399. It requires minimum shareholding and consent of other shareholders. Procedural requirements include proof of holding and consent. Purpose is to prevent frivolous litigation by those with no real stake. But when powers of CLB are not clearly defined, minority may suffer if technical objections are raised. Many feel remedy is not effective because of procedural hurdles. When company is going concern, winding up is not option and court asks to use 397/398. So section 399 becomes critical entry point.
Initial objection vs delayed objection
Majority can raise maintainability on section 399 at initial stage. CLB can look into holding, membership, consent and decide. If facts are disputed, Board can entertain petition and decide finally. Problem arises when objection is raised in middle or at final stage after participating fully. In my opinion, if company was silent initially, it should not be allowed to raise technical plea later. 397/398 is extraordinary remedy, not like ordinary civil suit. Allowing late technical objections defeats object of preventing oppression. Board must discourage such tactics and decide on merits once parties have gone ahead.
Death of petitioners and consent issue
397/398 cases take long time. During pendency some petitioners may die. Then issue of consent from legal representatives arises. This is technical objection and must be handled carefully. If substantial number of petitioners are alive and continuing, CLB can proceed. If most have died and LRs show no interest, petition can be dismissed. No straight rule can be laid. It depends on facts. Substance must be seen: do remaining petitioners still represent requisite percentage and stake? If yes, litigation should not be killed on technicality. Object is to protect company and minority, not to end case on form.
Supreme court in jp srivastava on substance
Hon’ble Supreme Court in J.P. Srivastava & Sons Pvt. Ltd. & Others Vs. Gwalior Sugar Co. Ltd. 2005 1 SCC 172 clarified. Non-compliance with regulation 18 regarding consent proof does not go to root of jurisdiction. CLB can call for further evidence under regulation 24. Objection can be by demurrer, but if Board looks at outside facts, petitioner must get chance to prove consent. SC said object of qualifying percentage is to avoid frivolous suits. English Act has no such limit. What is needed is broad commonsense approach. If Court is satisfied petitioners represent requisite percentage, it should pass orders to end matters complained of, not reject on technical requirement. Substance must take precedence over form. Some rules are vital, others directory if no prejudice.
Conclusion
Section 399 companies act 1956 interpretation technical should not be strict. SC in JP Srivastava 2005 makes it clear. Qualifying requirement is directory unless it goes to root. Late objections, death of some petitioners, minor procedural gaps should not defeat petition if substantial compliance exists and no prejudice. In 2010, CLB must follow substance over form to make 397/398 effective preventive remedy for minority.
