Dr. Bais Surgical and Medical Institute Pvt. Ltd & Ors. vs Dhananjay Pande

399 indicates that the expression “member” cannot be construed in isolation or confined to the technical formulation contained in s.41(2) – Rather, the broader definition embodied in s.2(27) assumes significance in determining whether a person is entitled to invoke the remedies contemplated under the Act – It would be contrary to settled principles of interpretation to attribute to the Legislature an intention to create conflicting meanings of the same expression within the statute – The expression “member”, when employed in the context of remedies u/ss.397 and 398, must therefore be construed with reference to the wider definitional framework provided in s.2(27) and allied provisions governing the rights of members – The conclusion treating respondent no.1 as a member was founded upon a consistent and cumulative chain of factual circumstances demonstrating recognition of his proprietary interest in the appellant company – On facts, respondent no.1 was consistently treated as a stakeholder having interest in the appellant company rather than as a mere investor or creditor – High Court also relied upon the financial and operational conduct of the company, which showed that respondent no.1’s investment was accepted and utilised for the expansion of the company’s business, resulting in increased authorised share capital and profitability – Respondent no. 1 had, in substance, acquired the status of a shareholder whose interest stood recognised by the company over a considerable period – High Court was justified in affirming the finding that respondent no.1 was entitled to be treated as a member for the purposes of maintaining proceedings u/ss.397 and 398. [Paras 21, 23, 29-31]

Companies Act, 1956 – ss.2(27), 41, 397, 398, 399 – “member” – Inclusive definition of “member” u/s.2(27) vis-à-vis s.41 dealing with acquisition of membership – Whether the expression “member” as appearing u/ss.397 and 398 is to be construed strictly in accordance with s.41 or it must be understood in the broader sense contemplated u/s.2(27) – Meaning and scope of the expression “member”, as occurring in ss.397,

398 and 399:

Held: The statutory framework under the Act, 1956 draws a clear distinction between the inclusive definition of the term “member” contained in s.2(27) and the provisions governing acquisition of membership set out in s.41 – s.2(27) employs language of wide amplitude and, in relation to a company, embraces every category of member, subject only to the limited exclusion of a bearer of a share-warrant issued u/s.114 of the Act – Whereas, s.41 operates in a different sphere and prescribes the recognised modes by which membership may arise – It contemplates, first, deemed membership in the case of subscribers to the memorandum; secondly, persons who agree in writing to become members; thirdly, entry of a person’s name in the register of members, which ordinarily constitutes conclusive evidence of membership; and lastly, persons reflected as beneficial owners in the records of a depository – The requirement that an agreement to become a member be “in writing”, introduced by the Amendment Act of 1960, was intended to ensure reliable proof of consent and to prevent fraudulent inclusion of names in the register, and not to impose entry in the register as the sole or exclusive mode of acquiring membership – A more fundamental consideration arises from the nature of jurisdiction conferred u/ss.397 and 398, which has consistently been recognised as equitable in character – These provisions, situated in Chapter VI, are designed to afford remedies to minority shareholders against acts of oppression and mismanagement – The entitlement to invoke such jurisdiction is regulated by s.399, which prescribes the eligibility criteria for maintaining an application u/ss.397 and 398 – Accordingly, the relevant enquiry, while determining maintainability, must center on whether the applicant satisfies the conditions prescribed u/s.399, rather than on a mechanical application of the procedural requirements found in s.41(2) – The equitable foundation of ss.397 and 398 must be a guiding factor to not construe the expression “member” in an unduly restrictive or technical manner confined solely to formal entry in the register, thereby frustrating the remedial purpose underlying the legislative scheme. [Paras 21, 22]