NMQs for CA Final Paper -4 CAL

Chapter -O & M
Ques:-
Examine the merits of the following petitions made under Sections 397 and 398 of the Companies Act, 1956 in the light of judicial pronouncements made in this regard:
(i) A group of shareholders holding 12% of the issued share capital of Unique Products Limited have filed a petition before the Company Law Board alleging various acts of illegal, invalid and irregular transactions entered into in the name of the Company.
Ans:-
(i) According to Sections 399(1)(a) of the Companies Act, 1956, a group of shareholders of Unique Products Limited must hold atleast 10% of the issued share capital of the Company or satisfy other requirements under section 399(1) of the Companies Act, 1956. Since the group holds 12% of the issue capital they are entitled to file a petition before
the Company Law Board under sections 397 and 398 of the Companies Act, 1956 by alleging that the affairs of the Company are being conducted in a manner prejudicial to public interest or in a manner oppressive to any member or members of the Company.
However, on the basis of Sheth Mohanlal Ganpatram V. Shri Sayaji Jubilee Colton and Jute Mills Company Ltd., mere illegal, invalid or irregular transactions entered into in the name of the company do not constitute a ground for invoking the provisions of section 397 unless it is proved that they are oppressive to any shareholder or prejudicial to the interest of the company or to the public interest.
Thus, in the present case, the petition filed by the group of shareholders will fail unless they can prove to the satisfaction of the Company Law Board that the acts complained of in the petition are oppressive and prejudicial to the interest of the company and the public interest. And that to wind up the company would unfairly prejudice such member or members, but that otherwise those facts would justify the making of a winding up order on the ground that it was just and equitable that the Company should be wound up.