Jurisdiction of the CLB

This Supreme Court judgement on oppression and mismanagement examined, inter alia, role of the Company Law Board (CLB) in cases of sections 397/398 of the Companies Act 1956.

Honorable Supreme Court observed that jurisdiction of the CLB is wide and can grant diverse reliefs to keep the company functioning and beneficial to shareholders.

In the case, there were two directors and two shareholders. Animosity arose between them. Apex court observed that it naturally affects functioning and management of affairs of the company. None of them willing to appoint additional director. Thus there existed dead lock. Under circumstances, the CLB directed the applicant to purchase shares held by respondent at a value to be determined by a chartered valuer. On appeal the High Court came to the concurrent finding that there was no mutual trust and confidence between the parties and it was impossible to run the company smoothly and upheld ruling of the CLB.

While considering Special Leave Petition, the apex court observed that, what may not be permissible for the affairs of a public limited company or even in a private company having large number of shareholders and directors, may be permissible in the case of this nature, where a company, for all intent and purport, is a quasi-partnership concern. Further, it stated it is necessary to take a holistic approach of the matter. The Parliament, while enacting a statute, cannot think of all situations which may emerge in giving effect to the statutory provision. The principle of ‘just and equitable clause’ is essentially equitable consideration and can be applied in this nature of cases. Relying on the English case law, it was observed by the apex court that principle applied in winding up of companies that “what is important is not the interest of the applicant but the interest of the shareholders of the company as a whole”, can be applied in a case under section 397 of the Act, subject to applicability of the well known judicial safeguards.

M.S.D.C. Radharamanan v. M.S.D. Chandrasekara Raja [2008] 83 SCL 451 (SC).