Introduction
Oppression and mismanagement remedies exist to protect shareholders and other legitimate stakeholders from the abuse of corporate power. They are particularly important in closely held companies, family companies and businesses where a minority investor may lack the voting strength to prevent exclusion, diversion of assets, dilution of shares or manipulation of corporate records.
A recurring preliminary objection in such proceedings is that the petitioner’s name does not appear in the company’s register of members. The company may argue that the petitioner is not a member and therefore has no standing to invoke the statutory remedy. This objection appears formally persuasive because membership is ordinarily established through the company’s register. It becomes problematic, however, where the company itself accepted the person’s investment, treated the person as a shareholder or deliberately failed to complete the formal entry.
The Supreme Court’s decision in Dr Bais Surgical and Medical Institute (P) Ltd v. Dhananjay Pande, clarifies that formal entry in the register is not an absolute prerequisite for maintaining a petition under Sections 397 and 398 of the Companies Act 1956. The Court treated the expression “member” in the context of oppression and mismanagement through an equitable and substantive lens rather than allowing a company to rely on its own failure to record a genuine proprietary interest.
The broader topic is therefore the relationship between formal membership and substantive entitlement in corporate remedies.
The Statutory Framework
Sections 397 and 398 of the Companies Act 1956 empowered eligible members to approach the Company Law Board where the company’s affairs were conducted in a manner oppressive to members or prejudicial to the interests of the company. Section 399 prescribed the eligibility requirements for maintaining such a petition, including the requisite number or shareholding threshold.
Section 41 defined the manner in which a person became a member of a company. In the case of a company having share capital, membership was ordinarily connected with subscribing to the memorandum, agreeing in writing to become a member and having the person’s name entered in the register of members.
The statutory scheme therefore contains two ideas that may conflict. The first is formal: membership is established through entry in the register. The second is remedial: oppression jurisdiction exists to prevent unfair conduct and provide equitable relief where corporate power is abused.
If the formal requirement were treated as conclusive in every case, a company could accept share application money, recognise a person as an investor, fail to issue shares or deliberately omit the person’s name from the register and then argue that the person has no remedy. The company’s own omission would become a defence to the oppression claim.
The Supreme Court rejected that result in Pande. It held that the expression “member” for the purpose of Sections 397 and 398 cannot be interpreted narrowly and mechanically when the surrounding facts demonstrate that the person was treated as having a genuine proprietary interest in the company.
The Pande Principle
The dispute in Dr Bais Surgical arose from a long-standing relationship between Dhananjay Pande and the company. The evidence included payment of substantial investment, association with the company’s management, rebranding of the business and communications recognising him as a co-owner or stakeholder.
Pande alleged that although his investment had been accepted, the company failed to issue shares or enter his name in the register. He subsequently challenged corporate conduct under Sections 397 and 398. The company argued that he could not maintain the petition because he was not formally recorded as a member.
The Supreme Court examined the cumulative circumstances rather than isolating the register. It held that the absence of formal entry did not automatically defeat the petition. The Court emphasised that the equitable jurisdiction concerning oppression and mismanagement must not be made ineffective by a technical objection where the company had accepted and used the person’s investment and consistently recognised the person’s proprietary involvement.
The principle is not that every investor or creditor becomes a member. The claimant must establish facts demonstrating that the company treated the person as having a membership or proprietary interest. The Court’s approach is evidence-based and exceptional, not an abandonment of the register as the ordinary record of membership.
Formal Title and Substantive Equity
Corporate law generally values certainty. The register of members identifies who may vote, receive dividends, inspect records and exercise statutory rights. If courts disregarded the register routinely, companies would face uncertainty about who is entitled to participate in corporate affairs.
The decision does not undermine this function. It addresses a different situation: where the register is incomplete, manipulated or inconsistent with the company’s own conduct. The register remains important evidence, but it is not necessarily conclusive against a claimant whose rights were prevented from being recorded by the company.
This is consistent with the equitable character of oppression jurisdiction. Sections 397 and 398 were designed to provide relief where strict legal rights alone could not resolve unfairness. The remedy permits the tribunal to examine the real relationship among the parties, the expectations created by their conduct and whether corporate machinery has been used to defeat a legitimate interest.
A company cannot rely on its own default to create an artificial absence of standing. If it accepted money as share capital, represented that shares would be issued, allowed the claimant to participate as an owner and then refused to record the interest, a purely formal approach would reward the alleged oppression.
Earlier Precedents
The Supreme Court’s approach builds on World Wide Agencies (P) Ltd v. Margaret T Desor, where the Court considered whether legal representatives of a deceased shareholder could maintain proceedings even though their names had not yet been entered in the register. The Court recognised that the beneficial or substantive interest in shares could be relevant to the statutory remedy, particularly where formal transmission had not been completed.
The decision in Hind Overseas Pvt Ltd v. Raghunath Prasad Jhunjhunwalla emphasised that oppression jurisdiction is equitable and must be applied to the facts of each case. The Court cautioned that every disagreement between shareholders is not oppression, but recognised that the remedy addresses conduct that is burdensome, harsh and wrongful.
In Shanti Prasad Jain v. Kalinga Tubes Ltd, the Supreme Court explained that oppression requires conduct that is unfair and prejudicial to the member’s rights, viewed in the context of the company’s affairs and the relationship among its shareholders. The judgment remains important because it distinguishes ordinary commercial mismanagement from conduct that justifies equitable intervention.
The courts have also recognised that the register may be rectified where a person’s name has been wrongly omitted or removed. The existence of rectification mechanisms reinforces the idea that the register is not beyond judicial scrutiny. A person should not be forced to wait for formal rectification where the conduct complained of concerns the very act of denying or suppressing the person’s membership.
The Companies Act 2013
The Companies Act 2013 reorganised the remedy through Sections 241 and 242. Section 241 permits members to complain of oppression and mismanagement, while Section 242 grants the National Company Law Tribunal power to make orders bringing an end to the matters complained of.
The eligibility requirements are set out in Section 244, which broadly corresponds to Section 399 of the 1956 Act. Section 2(55) defines “member” and recognises different ways in which membership may arise, including subscription to the memorandum, written agreement and entry in the register.
The reasoning in Pande is relevant to the 2013 Act because Sections 241 and 242 are substantially aligned with Sections 397 and 398. The same question may arise where a person’s investment was accepted, the person was treated as an owner or shareholder and the absence of registration resulted from the company’s conduct.
The tribunal will still need to examine the evidence and statutory eligibility. The decision does not permit any person with a commercial grievance to bypass Section 244. It only prevents formal non-entry from being treated as an automatic answer where the substantive relationship demonstrates membership in the relevant remedial sense.
What Evidence Is Relevant?
A claimant seeking to rely on the Pande principle must present more than an assertion of ownership. Courts may consider share application forms, payment records, board minutes, allotment proposals, correspondence, tax documents, company stationery, management appointments, financial statements and communications describing the claimant as a shareholder or co-owner.
The conduct of the company is especially important. Did it accept the money as share capital? Did it promise to issue shares? Did it allow the claimant to participate in management? Did it represent to third parties that the claimant had an ownership role? Did it refuse to enter the name despite repeated requests?
The claimant must also connect the omission to the oppression alleged. A person cannot establish standing simply by showing that money was paid if the transaction was a loan, advance or commercial investment unrelated to membership. The evidence must demonstrate a membership or proprietary relationship rather than an ordinary creditor-debtor relationship.
Conclusion
The Supreme Court’s decision in Dr Bais Surgical and Medical Institute (P) Ltd v. Dhananjay Pande establishes that formal entry in the register of members is not an absolute condition for maintaining an oppression or mismanagement petition under Sections 397 and 398 of the Companies Act 1956.
The decision rests on a substantive and equitable principle. Where a company accepts a person’s investment, recognises the person’s proprietary interest and then fails or refuses to record the membership, it cannot rely on its own omission to defeat the statutory remedy. The claimant must establish the relationship through contemporaneous records and conduct, and the case must still satisfy the requirements of oppression or mismanagement.
The judgment preserves the register as the ordinary evidence of membership while preventing it from becoming a shield for corporate unfairness. Its broader lesson is that company law values formal records, but it will not allow corporate machinery to be used to defeat genuine ownership interests through technical exclusion.
References
- Dr Bais Surgical and Medical Institute Pvt Ltd v. Dhananjay Pande, 2026 SCC OnLine SC 794.
- Companies Act, 1956, Section 397.
- Companies Act, 1956, Section 398.
- Companies Act, 1956, Section 399.
- Companies Act, 1956, Section 41(2).
- World Wide Agencies (P) Ltd v. Margaret T Desor, (1990) 1 SCC 536.
- Hind Overseas Pvt Ltd v. Raghunath Prasad Jhunjhunwalla, (1976) 3 SCC 259.
- Shanti Prasad Jain v. Kalinga Tubes Ltd., AIR 1965 SC 1535.
- Companies Act 2013, Section(s) 241 and 242.
- Companies Act 2013, Section 244.
- Companies Act 2013, Section 2(55).
- Needle Industries (India) Ltd v. Needle Industries Newey (India) Holding Ltd., (1981) 3 SCC 333.
- Dale and Carrington Investment (P) Ltd v. PK Prathapan, (2005) 1 SCC 212.
- Maharashtra Power Development Corporation Ltd v. Dabhol Power Company, (2003) 11 SCC 186.
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