LEGITIMATE EXPECTATION

A person joined a company on the understanding that he would participate in the

management and would receive remuneration has a legitimate expectation that he would not
be ousted from Management and would not be deprived of his remuneration. On the basis of
legitimate expectation he is entitled to an order that his shares be purchased by other
shareholders who ousted him from the Management.1

APPROPRIATE RELIEF

For ouster from the management the petitioner has to show that he had a legitimate
expectation to be consulted over the affairs of the company and that his exclusion from the
management would depress the value of its investments. Though a minority shareholder must
come to the Court with “clean hands” but the reliefs are at the sole discretion of the Company
Court [CLB/Tribunal(NCLT). Even if the petitioner took retaliatory action on the same
ground of which he complains against the respondent this will not prevent the Court
[CLB/Tribunal(NCLT) from granting appropriate reliefs to the petitioner.2

DESTROYING EXISTING MAJORITY OR CREATING NEW MAJORITY

Where the Directors wrongfully utilised their fiduciary powers over the shares for destroying
an existing majority or creating a new majority or for consolidating and improving their
voting powers, the Company Court[the CLB/Tribunal (NCLT] will interfere in the matter.
The pendency of the suit or proceedings before the High Court which are much wider relief
will not prevent the Company Court [the CLB/Tribunal (NCLT)] from making appropriate
orders on the application.3

The directors issued further shares creating new majority. The existing majority became a
minority and made an application to the CLB for relief against oppression and breach of
fiduciary duty of directors by allotment of the said shares. In the facts it was found that the
shares were issued with the sole object of creating a new majority or with a view to convert a
majority into a minority. The said action of the Board of Directors was in breach of their
fiduciary duties and a grave act of oppression against the existing majority shareholders. The
allotment was cancelled.4

RESOLUTION MAY BE STRUCK DOWN, IF OPPRESSIVE

In exercising jurisdiction under ss 397 and 398 of the 1956 Act, the Court[ CLB/Tribunal]
may strike down a resolution of the Board of Directors though legal if it oppressive to the
minority shareholders or prejudicial to the interests of the company. The notice convening the
Board Meeting is required to be sent to all the Directors. Twenty- one days clear notice has to
be given to convene a General Meeting. A notice convening a meeting in violation of the
mandatory provisions of s. 171 curtailing the period of notice would be invalid. The acts of

1
Synchron Machine Tools P. Ltd. v. U.M. Suresh Rao, (1994) 79 Comp. Cas. 868 (Kar.)
2
Re, Elgindata Ltd., (1991) BCLC 959 (Ch.)
3
Rashmi Seth v. Chemon (India) Pvt. Ltd., (1995) 82 Comp. Cas. 563
4
Uma Pathak v. Eurasian Choice International Pvt. Ltd., (2004) 122 Comp. Cas. 922
the Director are valid under s. 290 but such acts should not be illegal and the benefit of this
section is meant for third parties and is not available to Directors and their relatives.5

LOCUS STANDI- PERSON AHVING LEGAL RIGHT MAY ONLY APPLY

A person having no manner of interest or concern in the company as a shareholder, creditor

or otherwise has no locus standi to prefer the application to the Court for an order under
s.237(a) (ii) of the 1956 Act, declaring that the affairs of the company ought to be
investigated by an Inspector appointed by the Central Government. In case of a company
having share capital, shareholders having 10% or more of the shares with consent letters of
members giving consent with the knowledge of issues and reliefs involved in the petition may
maintain a petition for relief against oppression and mismanagement under ss 397 and 398
read with s. 399 (1)(a) of the 1956 act.6

NO INVESTIGATION ON MERE SUSPICION OR SURMISES (USE)

Where the alleged acts of mismanagement were either past and concluded transactions or
deliberated and appropriately dealt with by the Board of Directors. An order of investigation
could not be made on mere suspicion or surmises without proper materials to enable the CLB
to form an opinion that the affairs of the company required to be investigated.7

OPPRESSION AND MISMANAGEMENT- SCOPE OF PETITION

Every act of the company cannot be termed as oppression. The issue of additional shares to
become oppression must have been issued mala fide and with ulterior motive. Petitions filed
before the Company Law Board and before the Court were heard and disposed of by the
Court. It was held that reliefs could be granted only on the basis of pleadings in petitions filed
before the Court. Reliefs granted by the CLB on the basis of petition originally filed before
the CLB was not proper. The Board of Directors took the decision to broad-based capital
structure. There was no prohibition in the Memorandum or Articles for such issue of shares.
The petitioning shareholders were aware of the decision of the Board but did not apply for
shares. They cannot claim that they were not aware of the decision and they cannot claim for
setting aside the issue of those shares. A private company passed resolution to issue further
capital. The shareholders did not apply for shares. Under the provisions of the Articles the
allotment was made to the chosen persons of the Board of Directors. Certain shares were also
earmarked for Chairman. The Chairman did not renounce the shares. From the quota of
Chairman’s shares subsequent transfer was not valid. In a private company the majority
shareholders transferred their shares to the company. The transfer, however, was rescinded. It
was held that other shareholders cannot claim to be allotted those shares pro rata.8

PAST ACTS- LIMITATION

5
Col. Kuldip Singh Dhillon v. Paragaon Utility Financiers P. Ltd, ( 1988 ) 64 Comp. Cas. 19 (P&H)
6
G. Haranadh v. Shri Laxmi Durga Paper Products (India) Ltd., (2006) 129 Comp. Cas. 501 (CLB)
7
A. Ravishankar Prasad v. Prasad Productions P. Ltd. (2007) 135 Comp. Cas. 416(CLB)
8
Sangramsinh P. Gaekwad v. Shanatdevi P. Gaekwad, (2005) 123 Comp. Cas. 566 (SC).
The CLB[the Tribunal(NCLT)] can take into account past acts if the facts have a link with the
events mentioned in the petition. In this connection Limitation Act, 1963 will not be
applicable.9

OBJECT OF QUALIFYING PERCENTAGE[SECTIONS 397 TO 399 OF THE

COMPANIES ACT, 1956]

The sole object of ss 397 to 399 of the 1956 Act requiring the prescribed qualifying
percentage of shares by the petitioner and his supporters is to ensure that no frivolous
litigation is resorted to by persons who have no real stake in the company.

9
Maharani Yogeshwari Kumari v. Lake Shore Palace Hotels, (1995) 3 Comp. LJ 418 (Raj.)