Maintainability threshold for oppression and mismanagement petitions depends on satisfying the statutory shareholding requirements first.

A petition for oppression and mismanagement under the Companies Act, 1956 may be tested first on maintainability, because section 399(1) fixes the statutory threshold to invoke sections 397 and 398 and that jurisdictional question can be decided before the merits. On the admitted facts, the petitioners had fallen below the required shareholding and did not otherwise meet the minimum membership criteria, so the statutory qualification to apply was absent. The dispute arising from the shareholders' agreement and alleged non-payment of consideration did not override the mandatory threshold. The company petition was therefore dismissed and the threshold objection succeeded.

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Issues: (i) Whether the Company Law Board could decide the maintainability of a petition under sections 397 and 398 of the Companies Act, 1956 as a preliminary issue; (ii) Whether the appellants satisfied the qualifying requirements under section 399(1) of the Companies Act, 1956 to maintain the petition.

Issue (i): Whether the Company Law Board could decide the maintainability of a petition under sections 397 and 398 of the Companies Act, 1956 as a preliminary issue.

Analysis: The statutory scheme of the Companies Act, 1956 was held to permit the Company Law Board to first examine whether the person approaching it had the statutory competence to maintain a petition for oppression and mismanagement. Section 399(1) fixes the threshold right to apply, and the Board's discretion under section 10E(5), read with the powers given to it under the Act, was treated as sufficient to decide that jurisdictional question before entering on the merits. The absence of a right under section 399 was held to be a matter that could be determined at the threshold and was not required to await a full trial.

Conclusion: The Company Law Board was competent to decide maintainability as a preliminary issue.

Issue (ii): Whether the appellants satisfied the qualifying requirements under section 399(1) of the Companies Act, 1956 to maintain the petition.

Analysis: On the admitted facts, the appellants had transferred shares and, after further allotment, their holding had fallen below the statutory threshold. The petition was filed when they were not holding not less than one-tenth of the issued share capital and did not otherwise satisfy the statutory minimum membership requirement. The Court held that the dispute, in substance, arose out of the shareholders' agreement and alleged non-payment of consideration, and did not justify bypassing the mandatory statutory qualification for invoking sections 397 and 398.

Conclusion: The appellants did not satisfy section 399(1) and therefore had no right to maintain the petition.

Final Conclusion: The dismissal of the company petition by the Company Law Board was upheld, and the appeals were dismissed.

Ratio Decidendi: A petition for oppression and mismanagement can be rejected at the threshold if the petitioner does not satisfy the mandatory qualifying requirements of section 399(1), and the maintainability question may be decided as a preliminary jurisdictional issue.

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