Why 397 398 cases are mostly in family companies
Oppression and mismanagement under section 397/398 is interesting but complicated. We rarely see it in listed public companies because SEBI, shareholding pattern and corporate governance reduce scope. It is common in private and closely held companies. Both minority and majority have grievances. Minority says rights on paper are not protected. Majority says 397/398 is misused to trouble business. Presentation is hard and decision is harder. This case study shows maintainability issue.
Case facts: will dispute leading to 397 398
Company incorporated 1992. Family members are shareholders. Head of family was MD and held substantial shares. Properties partitioned in 2002. He executed will in 2005 in favour of son "A", then revoked and executed new will in 2006 in favour of son "B" and probated it. "A" knew but kept silent. MD died 2008. "B" called board meeting for transmission of shares as per 2006 will. "A" filed civil suit in 2008 to declare 2006 will void, but did not pursue. After transmission, "B" holds 89%, "A" holds 11%. Company runs properly, accounts are maintained, board notices sent to "A". "A" never attends but files 397/398 with vague allegations. No specifics of oppression or continuing mismanagement.
Maintainability issue: prima facie case missing
"B" is scared because nothing illegal was done. He wants dismissal on maintainability. Two views exist. One: Board should not allow proceeding where prima facie essentials are absent. Majority should not suffer years of litigation. Second: Whether prima facie case exists should be decided only after full trial, which takes years. Normally CLB asks reply and decides finally. Applications on maintainability are rarely entertained. Board prefers to see documents and then decide.
Section 399 qualification and procedural objections
Maintainability is often raised on 399 qualification or procedural irregularity. But object of 397/398 has been explained by CLB, HC and SC in many cases. Courts do not want technical dismissal at threshold if real oppression exists. Here however, allegations are vague, no continuing act, and dispute is really about will. Civil suit on will is pending. 397/398 is being used to pressure majority. In such cases dismissal at outset may be justified.
Clb approach and settlement culture
In practice CLB favours settlement in family companies. If settlement fails, it goes to final hearing. This causes delay and harassment. My opinion is that application on maintainability can be entertained when essentials are clearly absent prima facie. Otherwise 397/398 becomes tool for vexation. Board must balance protection of minority with prevention of abuse.
Conclusion
Section 397 398 maintainability company law board case study shows gap. When petition has no specific allegation and dispute is outside company affairs, CLB should test prima facie case early. Else majority will be tied in litigation for years. Law must protect both minority rights and majority’s right to run business.
