1988 (3) TMI 389 - HC - Companies Law

Company Membership of Oppression and Mismanagement Right to apply under section 397 and 398

Summary

Issues Involved:
1. Membership of the petitioners in the first respondent-company u/s 41 of the Companies Act, 1956.
2. Compliance with section 41(2) of the Act for establishing shareholder status.
3. Adverse inference for non-production of the register of members.
4. Interpretation of "member" under sections 397 and 398 of the Act.

Summary:

1. Membership of the Petitioners:
The petitioners, shareholders of respondent No. 1-company, filed a petition u/s 397 and 398 of the Companies Act, 1956, alleging oppression and mismanagement. The respondents contended that the petitioners were not valid members as per section 41 of the Act, specifically section 41(2), which requires a written agreement to become a member.

2. Compliance with Section 41(2):
The court examined whether the petitioners complied with section 41(2), which mandates a written agreement for membership. The petitioners argued that various documents, including balance-sheets, minutes of meetings, and share scrips, constituted sufficient written consent. The court concluded that the petitioners had given their consent to become members, even if the consent came after the allotment of shares.

3. Adverse Inference for Non-Production of Register:
The court noted that respondent No. 1 failed to produce the register of members despite a court order. This non-production could lead to an adverse inference against the respondents.

4. Interpretation of "Member" under Sections 397 and 398:
The court interpreted the term "member" in the context of sections 397 and 398, considering section 2(27) of the Act, which provides a comprehensive definition. The court held that the meaning of "member" under sections 397 and 398 should not be controlled by section 41(2). The purpose of section 41(2) was to protect individuals from being wrongfully listed as members without their consent, particularly in cases of liquidation.

Conclusion:
The court dismissed the appeal, affirming that the petitioners were valid members of the company for the purposes of sections 397 and 398, despite the contention that they did not comply with section 41(2). The court emphasized that the statutory documents and conduct of the company indicated the petitioners' membership. The case was remanded for expeditious disposal of the main petition and other preliminary issues.