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     Earlier, I have written few articles on oppression and mismanagement under section 397/398 of Companies Act, 1956. After looking into an interesting angle while dealing with a Company issue, I have decided to present that inviting comments from my fellow professionals and academicians.

     As the stock of a private limited companies normally be in the hands of few people and within family, there tend to be disputes between or amongst the members and it becomes substantial in most cases in view of their stakes. In public limited companies and the listed public companies, the shares are allotted to many persons or organisations following the SEBI (DIP) guidelines and we will see the presence of large scale retail investors. Even in these public companies or the listed public companies, a member may have some grievance against the management or he may not be satisfied at the manner in which the company is conducting its day-to-day affairs.  But, it is very rare to see a roar from a group of members or a minority against majority in public limited companies or the listed public companies in view of their understanding of company affairs and involvement in the issues concerned.

     What happens is that, in private limited companies or family companies, there will be many transactions or financial dealings for which there may not be any record and there can be undervaluation or routing of money from parent company to its sister concerns. As such, a minority shareholder in a closely held private company or a private company, may not venture ignoring his interest in the company or questioning the misdeeds of majority in the course.

     Pursuing an application under section 397/398 of the Companies Act, 1956 is always a complicated exercise and the minority shareholder/s will be following-up the litigation without any negligence in view of their stakes or interests in the Company.

But, the interesting issue is like:

     What happens to an application before the Board under section 397/398 of the Companies Act, 1956 when a creditor files a winding-up petition before the High Court and the Company is wound-up literally?

      This is an interesting issue to be looked into. An applicant before the Board may not have the knowledge of winding-up proceedings at times. Certainly, an application under section 397/398 of the Companies Act, 1956 is entertained and preventive measures are passed when the winding-up the company prejudice the members of the Company. So, the winding-up proceedings will certainly have an impact on the pending application before the Board under section 397/398 of the Act.

       Unless the applicant before the Board is vigilant at the winding-up proceedings and advocate his case before the concerned Court, his interests and for what he pursues the litigation before the Board will be defeated.

       This is really an interesting issue to dealwith.


       I have just presented an interesting issue before my friends, colleagues and the professionals dealing with the corporate issues for their kind comments and I have expressed my views.



Published by

Durga Rao
Category Corporate Law   Report

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