Summary
For maintaining a petition for oppression and mismanagement under Sections 397 and 398 of the Companies Act, 1956, 'member' takes the wider meaning in Section 2(27) and is not confined to persons entered in the register of members under Section 41(2); a person whose proprietary interest the company recognised by its conduct may sue. The concurrent finding that the respondent, whose share application money the company accepted and used, was a member was upheld.
Issues
- Whether a person whose name was not entered in the register of members can be treated as a 'member' entitled to petition under Sections 397 and 398 of the Companies Act, 1956.
- Whether the expression 'member' in Sections 397 to 399 is governed by Section 41 or by the definition in Section 2(27).
- Whether the Company Law Board and High Court rightly treated the respondent as a member on the facts.
Provisions considered
- Section 2(27), Companies Act, 1956Read as a definition of wide amplitude covering every category of member, excluding only bearers of share-warrants; it governs the meaning of 'member' for the remedies under Sections 397 and 398. (¶¶ 18, 21, 23)
- Section 41, Companies Act, 1956Prescribes recognised modes of acquiring membership; the 'in writing' requirement in Section 41(2) was meant to secure proof of consent and prevent fraudulent entries, not to make entry in the register the sole mode of membership. (¶¶ 19, 21, 22, 24)
- Sections 397, 398 and 399, Companies Act, 1956The jurisdiction is equitable and remedial for minority shareholders; maintainability turns on the eligibility conditions of Section 399, and 'member' must not be construed in an unduly technical way that defeats that purpose. (¶¶ 22, 23, 26, 27, 28)
Held
- Section 2(27) defines 'member' broadly, while Section 41 merely sets out recognised modes of acquiring membership; entry in the register ordinarily proves membership but is not the exclusive way in which membership can arise. (¶¶ 21, 24, 25)
- Because the jurisdiction under Sections 397 and 398 is equitable, the maintainability inquiry should focus on the conditions in Section 399, and 'member' in these provisions must be read with reference to Section 2(27), not confined to the technical requirement of Section 41(2); a person treated or recognised as a shareholder by the company's conduct may maintain the petition. (¶¶ 22, 23, 26, 27, 28)
- The respondent was rightly treated as a member: the company's correspondence described him as a co-owner, conciliation proceedings acknowledged his entitlement to shares, he was made Managing Director and the hospital was renamed after his trading concern, and his share application money was accepted and used to expand the business. He was thus treated as a stakeholder, not a mere creditor. (¶¶ 14, 29, 30, 31)
Result
Appeals dismissed; the amount deposited in the Supreme Court with accrued interest was directed to be released to respondent no. 1; no order as to costs.