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Unit 13: Borrowing and Debentures

by the court unless it has received a report from the Registrar that the affairs of the Notes
company have not been conducted in a manner prejudicial to the interest of its
members or to public interest.
(iii) Oppression and Mismanagement: The principle of majority rule does not apply to cases
where Ss.397 and 398 are applicable for prevention of oppression and
mismanagement. A member, who complains that the affairs of the company are
being conducted in the manner oppressive to some of the members including
himself, may apply to the Court by petition under s.397. In O.P. Gupta v. Shiv
General Finance (p) Ltd. (1977), the Delhi High Court held, that a member’s right to
move the Court under s.397 was a statutory right and cannot be affected by an
arbitration clause in the Articles of Association of a company.

(iv) Rights of dissentient shareholders at the time of takeover bids: When an offer for the
purchase of all the shares is received and the offer is accepted by the holders of 90 per
cent of the shares, the party making the offer may, on the same terms acquire the
remaining shares also. But a notice is to be given to the dissenting shareholders who
have a right to apply to the court praying that their shares should not be allowed to
be acquired, on the terms of the scheme. On hearing the parties concerned, the court
makes an order as it may think fit.

Self Assessment

5. Debenture which are repayable only on the happening of an event of winding up is called
(a) Redeemable (b) Irredeemable

(c) Perpetual (d) Both (b) and (c)
6. For the purpose of debt equity ratio Fully Convertible Debentures are classified as
(a) Debt (b) Equity

(c) Both (a) and (b) (d) None of the above
7. In case of Partly Convertible Debentures nonconvertible portion is classified as

(a) Debt (b) Equity
(c) Both (a) and (b) (d) None of the above
8. Amount due on redemption including interest should be claimed with in how much time.

(a) 10 year (b) 9 year
(c) 8 year (d) 7 year

13.3.2 Powers of Company Law Board for Prevention of Mismanagement
and Oppression (Ss. 397-399 and 402)

Section 397 provides that any member of a company who complains that its affairs are being
conducted in a manner oppressive to any member or members (including any one or more of
themselves) may apply to the Company Law Board under this section. With a view to bring an
end the matters complained of, the Company Law Board may make such order as it thinks fit
under this section, if it is of opinion that– (i) the affairs of the company are being conducted in a
manner prejudicial to public interest or in a manner oppressive to any member or members;
and (ii) to wind up the company would unfairly prejudice the members who have lodged the

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