Protection to minority in corporate world
The Companies Act 1956 provides good law for incorporation and functioning of companies, but protection to minority shareholders remains a serious issue. In practice majority often tries to deny rightful share to minority or runs company like proprietorship ignoring corporate regulations. I have seen cases where companies with huge assets are mismanaged and minority interest running to several crores is at stake. In listed public companies SEBI regulations and listing agreement give some comfort and shareholders can exit through open market. But in private limited companies transfer of shares is restricted and no outsider will buy shares if they do not trust existing management. Therefore minority in private companies face greater risk. Though we have provisions for audit, accounting standards, winding up and special forum like CLB, practical difficulties make enforcement complicated because of majority rule and technicalities.
Approaching company court for winding up
Minority shareholders can approach High Court or Company Court for winding up on just and equitable grounds. Courts exercise this power very cautiously because company may be a going concern with future prospects and interests of other stakeholders. If courts entertain winding up petitions too freely, then provisions for revival and powers of CLB under 397/398 will become meaningless. Therefore when oppression and mismanagement is alleged before Company Court, it often directs shareholders to approach CLB as alternative remedy. High Court has track record of speedy disposal but due to this technical approach, minority find it difficult to get direct relief for oppression from Company Court and are pushed towards CLB.
Approaching civil court for remedies
As law stands today there is no express bar on shareholders approaching Civil Court for corporate disputes. But Civil Court process is time consuming and highly technical. Further, Civil Courts may lack expertise in company matters and may apply Companies Act provisions strictly which can lead to harsh results. Because of delay and lack of specialization, shareholders normally hesitate to go to Civil Court. Sometimes they file in Civil Court and simultaneously approach CLB under 397/398. Therefore Civil Court is not the preferred forum for immediate and effective relief against oppression and mismanagement. Approaching company law board under 397 398
If shareholders meet qualification under section 399, CLB is the most effective forum for oppression and mismanagement. CLB has enormous powers to put an end to matters complained of and regulate affairs of company. It can even order investigation. Many feel relief is not speedy and technicalities come in way, but Constitutional Court interpretations have helped ignore unnecessary technicalities. CLB also gives preference to ensure company continues as going concern. Despite limitations, this is the only practical remedy for minority. Execution and contempt of CLB orders need better mechanism in new Act. If proceedings get delayed and no interim protection is given, minority may be forced to compromise and sell shares to majority.
Approaching arbitral tribunal and conclusion
Whether arbitration clause can oust CLB jurisdiction under 397/398 is a complicated issue. If all stakeholders agree, disputes can be referred to arbitration. But question is whether arbitrator can handle public interest aspects like CLB. Effectiveness depends on facts of each case and no hard and fast rule exists. Overall, minority must convince chosen forum about importance of their interest. There is also criticism that technicalities in Companies Act are misused to defeat minority rights. Therefore while law is good, practical protection depends on forum chosen, speed of relief and willingness of authorities to look at substance over form.
