Shift In 397/398: From Technicality To Liberal Approach
Earlier 397/398 was interpreted strictly. "Oppression" meant harsh and burdensome. CLB said disputed facts need trial. Consent under 399 was debated. Majority got benefit of doubt. Now trend changed. CLB entertains petition easily and asks majority to reply even if allegation looks motivated. Some say CLB can pass order even without strict oppression. Appeal under 10F also broadened. "Perversity" is now question of law
The Interim Relief Dilemma: Disclosure Without Prima Facie
Current practice: CLB admits 397/398 petition and immediately orders "give documents, give inspection". Reason given: let us see if oppression exists. This is dangerous. Under 399, even 10% shareholders can file. If every small group can force company to disclose all secret documents, business will suffer. Company secrecy is also important for business interest.
Calcutta HC In Blancatex 2011: Prima Facie Must Come First
AI Champdany Industries Ltd Vs Blancatex AG, CDJ 2011 Cal HC 557 settles it. HC said CLB wrongly ordered disclosure to "find" prima facie. Correct approach: first see pleadings and materials. If they show case with reasonable likelihood of success, then order disclosure under Regulation 24.
HC criticized CLB: "These findings do not show any prima facie case under 397/398 was appreciated. Approach of establishing prima facie by ordering disclosure is erroneous. "New Companies Bill 2010 And Class Action Risk
New Bill lowers threshold to 5% and allows exemption. Any member or creditor can ask NCLT for investigation. Class action is also coming. This is good for governance. But risk is frivolous litigation and habitual litigants. If NCLT also adopts "disclose first, ask later" approach, companies will be harassed.
Conclusion
Section 397 398 prima facie interim relief clb must follow the Blancatex rule that prima facie case comes first, then disclosure. With the new Companies Act lowering threshold to 5% and introducing class action, NCLT will face more petitions and must screen them at admission to avoid fishing expeditions. Genuine minority oppression needs quick remedy, but vague and motivated petitions should be dismissed early to prevent harassment. Companies must maintain proper records as first defense, while minority must file with specific facts and documents. Only this balance can keep Section 397/398 effective, credible, and prevent it from becoming a tool for misuse in the new NCLT regime.
