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Section 398 – The Companies Act,1956

The Companies Act, 1956

398. Application to Tribunal for relief in cases of mismanage-ment.

398. Application to 1[Tribunal] for relief in cases of mismanage-ment.(1) Any members of a company who complain

(a)that the affairs of the company 2[are being conducted in a manner prejudicial to public interest or] in a manner prejudicial to the interests of the company; or

(b)that a material change not being a change brought about by, or in the interests of, any creditors including debenture holders, or any class of shareholders, of the company) has taken place in the management or control of the company, whether by an alteration in its Board of directors, 3[***] 4[or manager], 5[***] or in the ownership of the company’s shares, or if it has no share capital, in its membership, or in any other manner whatsoever, and that by reason of such change, it is likely that the affairs of the company 6[will be conducted in a manner prejudicial to public interest or] in a manner prejudicial to the interests of the company,

may apply to the 1[Tribunal] for an order under this section, provided such members have a right so to apply in virtue of section 399.

(2) If, on any application under sub-section (1), the 1[Tribunal] is of opinion that the affairs of the company are being conducted as aforesaid or that by reason of any material change as aforesaid in the management or control of the company, it is likely that the affairs of the company will be conducted as aforesaid, the 1[Tribunal] may, with a view to bringing to an end or preventing the matters complained of or apprehended, make such order as it thinks fit.

comments

(i) The holder of a General Power of Attorney for and on behalf of a shareholder can validly give consent to a petition under sections 397 and 398 of the Act; P. Punnaiah v. Jeypore Sugar Co. Ltd., AIR 1994 SC 2258: 1994 (81) Comp. Cas. 1: 1994 (2) Com LJ 13.

(ii) Section 398 comes into play when there is actual mismanagement or apprehension of mismanagement of the affairs of the company. It may be contrasted with section 397 which deals with oppression to the minority shareholders, whether there is prejudice to the company or not; Shanti Prasad v. Kalinga Tubes Ltd., 1965 (35) Comp. Cas. 351: 1965 (1) Com LJ 193: AIR 1965 SC 1535.

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1. Subs. by Act 11 of 2003, sec. 44, for “Company Law Board”. Earlier the words “Company Law Board” were substituted by Act 31 of 1988, sec. 67, for the word “Court” (w.e.f. 31-5-1991).

2. Subs. by Act 53 of 1963, sec. 11, for “are being conducted” (w.e.f. 1-1-1964).

3. The words “or of its managing agent or secretaries and treasurers,” omitted by Act 53 of 2000, sec. 178 (w.e.f. 13-12-2000).

4. Ins. by Act 65 of 1960, sec. 153 (w.e.f. 28-12-1960).

5. Certain words omitted by Act 53 of 2000, sec. 178 (w.e.f. 13-12-2000).

6. Subs. by Act 53 of 1963, sec. 11, for “will be conducted” (w.e.f. 1-1-1964).

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The Companies Act, 1956

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