Companies Act, 1956 — Sections 397, 398, 399 — Locus standi — “Member” — Scope and interpretation Paras 17, 22–23 Right to invoke oppression and mismanagement jurisdiction depends on status as “member”. Expression “member” cannot be construed narrowly or technically. Must be interpreted in light of equitable jurisdiction under Sections 397–398.

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APEX COURT HELD THAT 

Companies Act, 1956 — Sections 397, 398, 399 — Locus standi — “Member” — Scope and interpretation

Paras 17, 22–23

• Right to invoke oppression and mismanagement jurisdiction depends on status as “member”.
• Expression “member” cannot be construed narrowly or technically.
• Must be interpreted in light of equitable jurisdiction under Sections 397–398.

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Companies Act, 1956 — Section 2(27) vis-à-vis Section 41 — Meaning of “member”

Paras 18–21, 23

• Section 2(27) provides broad, inclusive definition.
• Section 41 prescribes modes of acquiring membership, not exhaustive definition.
• Entry in register is not the sole test of membership.

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Membership — Absence of entry in register — Whether decisive

Paras 21, 25, 28–29

• Entry in register ordinarily evidences membership but is not conclusive in all cases.
• Where:
  • investment is accepted,
  • proprietary interest recognised,
  • conduct of company treats person as stakeholder,
    such person may be treated as deemed member.

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Equitable jurisdiction — Oppression and mismanagement — Liberal construction

Paras 22, 27–28

• Sections 397–398 confer equitable and remedial jurisdiction.
• Interpretation must advance object of protecting minority shareholders.
• Technicalities should not defeat substantive rights.

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Membership — Agreement in writing — Requirement — Nature

Para 21

• Requirement of “agreement in writing” under Section 41(2) is evidentiary.
• Introduced to prevent fraudulent inclusion, not to restrict genuine claims.

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Deemed membership — Recognition through conduct

Paras 29–30

• Membership may arise from:
  • allotment (even if imperfectly documented),
  • acceptance and utilisation of investment,
  • participation in management,
  • consistent treatment as stakeholder.

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Company conduct — Estoppel — Taking advantage of own wrong

Paras 29–31

• Company cannot deny membership when:
  • it accepted funds,
  • utilised investment,
  • treated investor as co-owner/Managing Director.

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Precedents — Applicability

Paras 24–28

• World Wide Agencies Pvt. Ltd. — legal representatives can maintain petition without entry.
• Shri Balaji Textile Mills — Section 41 procedural, not restrictive.
• Umesh Kumar Baveja — conduct-based recognition of membership.

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Test — Membership for purposes of Sections 397 & 398

Paras 22–23, 31

• Determination depends on:
  • substantive rights,
  • equitable considerations,
  • factual recognition of shareholding interest.

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RATIO DECIDENDI

Paras 21–23, 31

For purposes of proceedings under Sections 397 and 398 of the Companies Act, 1956, the expression “member” must be construed broadly; absence of formal entry in the register of members is not decisive where the person’s proprietary interest is recognised by the company and supported by its conduct.