Board duty and corporate reality
Board of directors must act in best interest of company and answer to shareholders in AGM. Majority shareholders usually control board, though best practice is to give representation to minority and independent directors. Public companies face Companies Act, SEBI and listing obligations. Private companies have less regulation. In day to day business, companies do many transactions. Some practices may lack strict legal sanctity but are common. Directors have access to all secrets and information. They are not above law. This creates space for disputes, especially when groups lose trust in closely held companies.
What qualifies as mismanagement under 397 398
Section 397/398 gives remedy to minority qualified under section 399. But not every irregularity is mismanagement. Courts have said acts must be "harsh, burdensome and wrong". They must be mala fide and for collateral purpose, giving advantage to some over others. Mere mistake, negligence or bad business decision is not enough. CLB must look at facts alleged, countered, law and impact. Proving some mismanagement is easy if minority has internal knowledge. But getting relief is not automatic. Board must examine whether conduct affects company and minority rights, and whether it amounts to oppression.
Minority cannot use privileged information with ulterior motive
Problem arises when minority uses privileged information to trouble majority. Every company has problems depending on size and volume. If every problem is cited as mismanagement, section 397/398 will be misused. Object is to protect minority, not to allow them to take advantage of technicalities or their own participation in acts. Principle "no one can take advantage of own mistakes" applies. CLB must see whether minority was also part of alleged acts. If yes, relief may be denied. This makes 397/398 complicated because Board has to go beyond pleadings and see conduct of both sides.
Supreme court in incable net case
SC in SLP No.9110 of 2008, Incable Net Andhra Ltd & Others Vs. AP Aksh Broadband Ltd & Others clarified. Court said nothing concrete was established on oppression or mismanagement by respondent. Conduct of petitioner director who was at helm was also relevant. Quoting Halsbury, SC said oppression means conduct of majority towards minority that is harsh, burdensome and wrong, mala fide, for collateral purpose. Unless such conduct is proved, CLB cannot invoke jurisdiction under section 402. This judgment stresses that proof must be concrete, not vague allegation. Technical act is not enough.
Conclusion
Mismanagement section 397 398 companies act 1956 minority relief is not available for every lapse. It requires harsh, burdensome and wrong conduct by majority. Incable Net 2008 shows CLB must be satisfied on facts before granting relief. In 2010, with more disputes, this approach prevents misuse. Minority must show real prejudice, not just internal information. Board must balance protection with business continuity.
