2006 (8) TMI 652 - Board - Companies Law

Summary

Issues:
1. Whether the provisions of Section 399 are mandatory or directory in nature.

Detailed Analysis:
The petitioners, holding 6.5% of the paid-up share capital of the Company, invoked the jurisdiction of the Company Law Board under Sections 397 and 398 of the Companies Act, 1956, alleging oppression and mismanagement. The petitioners argued that despite not meeting the requirements of Section 399, their genuine grievances should not be dismissed on procedural or technical grounds. They contended that the requirements of Section 399 are directory and not mandatory, citing legal precedents to support their position. The key issue before the judge was to determine the nature of the provisions of Section 399 - whether they are mandatory or directory.

The judge examined Section 399 of the Companies Act, which outlines the right to apply for relief in cases of oppression or mismanagement. The section specifies the minimum qualifications that members should possess, such as numerical strength or the extent of their share capital, to make an application under Section 397 or 398. The judge noted that Section 399 allows for an exception where the Central Government may authorize a member to apply despite not meeting the eligibility criteria. Citing legal precedents, including a Supreme Court decision, the judge emphasized the importance of shareholders holding the requisite percentage to maintain an action under Section 397/398. The judge concluded that the requirements of Section 399 are substantive, not procedural, and should be construed as mandatory. The judge highlighted that the word "shall" used in the section is imperative and must be interpreted as mandatory, regardless of any resulting prejudice. Therefore, the judge ruled that the present company petition, not meeting the mandatory requirements of Section 399, should be dismissed.

In light of the above analysis, the judge held that the petitioners lacked the requisite locus standi to maintain the petition. Consequently, the company petition was dismissed without delving into its merits. The petitioners were granted the liberty to pursue appropriate action under the relevant provisions of the Act to address their grievances.