The Core Issue: Can You Sue Subsidiary In 397/398
Section 397/398 protects minority against oppression in "company". Holding company and subsidiary are distinct juristic persons. So shareholder of holding is stranger to subsidiary. Majority argues: delete subsidiaries from petition. Minority argues: without looking at subsidiary, oppression cannot be stopped. This tension is common in group companies. If CLB takes narrow view, minority must go to Civil Court. Civil suit will take 10 years and court will not understand company affairs.
Madras HC In Amalgamations: Law Vs Equity
In Amalgamations Ltd 2011, HC agreed with CLB. It said petition was essentially against holding. No prima facie allegation against subsidiaries. So deletion was proper. Court explained difference: Section 235 is for investigation. There Central Govt appoints inspectors who can go into subsidiary. Section 397/398 is for oppression. Membership is prerequisite under 399. You cannot be oppressed by company in which you are not member. HC also cited Micromeritics Engineers 2004 122 CC 150: first decide holding company, then if needed inspector can look at subsidiary under 239.
Why This Creates A Gap
Reality: majority uses subsidiary to siphon. Example: holding sells asset to subsidiary at undervalue. Holding becomes empty. Minority in holding suffers. If CLB says "we cannot see subsidiary", then what. Minority must prove oppression in holding alone. But all damage is in subsidiary. Waiting for Section 235 is not practical. Central Govt may never act. Section 402 is wide: "such order as it thinks fit". Courts in Needle Industries said do not take narrow legalistic view. Purpose is to do substantial justice.
Suggested Approach: Facts Decide Jurisdiction
Better rule: If no allegation against subsidiary, delete it. That prevents fishing expedition. If there is prima facie allegation of diversion, collusion, or asset stripping through subsidiary, CLB must look at it. It can implead subsidiary as necessary party. Relief can be against holding to stop further dealing with subsidiary, or to bring back assets. This respects separate personality but also protects minority. Amalgamations left door open: "in appropriate case". So CLB has discretion.
What NCLT Must Do Under New Companies Act
New Act will have NCLT. Same problem will arise. If NCLT copies restrictive view, 241/242 will also be ineffective. NCLT should: Allow evidence of subsidiary transactions. Pass orders directing holding to unwind transaction with subsidiary. In extreme case, direct subsidiary to be joined. Goal is "put an end to matters complained". Technicality should not defeat that.
Conclusion
CLB powers subsidiary 397 398 holding company must be interpreted purposively. Amalgamations 2011 is right that automatic inclusion is wrong. But automatic exclusion is also wrong. If facts show holding used subsidiary to oppress, CLB/NCLT must act. At Nathan & Associates we build case with bank statements, related party disclosures, and ask for both 397 and 235 relief to ensure remedy.
