Jurisdictional finding for winding up under Section 397 is mandatory; absence renders consequent remedies legally unsustainable.

A Section 397 remedy requires two affirmative preconditions: that company affairs are being conducted oppressively or prejudicially, and that a just-and-equitable winding up would unfairly prejudice the petitioners; Section 398's remedial powers do not dispense with the Section 397(2) jurisdictional finding. Factual findings of oppression or irregularity cannot substitute for the specific unfair-prejudice finding, and reliance on Section 397 must be justified where alternative remedies exist. Absent the mandatory jurisdictional finding that winding up would unfairly prejudice petitioners, consequential remedies premised on Section 397/398 are legally defective and cannot be sustained.

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Issues: (i) Whether the Company Law Board's order under Sections 397/398 of the Companies Act, 1956 is sustainable where the Board did not record a finding that a winding up on just and equitable grounds would unfairly prejudice the petitioners (requirement under Section 397(2)); and whether the CLB's reliefs consequent to findings of oppression should stand.

Analysis: The statutory framework requires two preconditions for relief under Section 397: (a) that the company's affairs are being conducted in a manner oppressive or prejudicial as specified, and (b) that winding up the company would unfairly prejudice the petitioning member(s), while otherwise the facts would justify a winding up as just and equitable (Section 397(2)). Where a petition relies on Section 397, the existence of both preconditions must be affirmatively addressed. Section 398 provides remedial powers but does not remove the need to satisfy Section 397(2) when relief is sought under Section 397. Factual findings of oppression or irregularity do not substitute for the specific jurisdictional finding that winding up would unfairly prejudice the petitioners; absence of such a finding is a legal defect when Section 397 relief is sought. Where adequate alternate remedies (for example, company suit for reinstatement or declarations) are available, reliance on Section 397 requires careful justification that winding up would cause the petitioners unfair prejudice compared with those remedies.

Conclusion: The Company Law Board's order is set aside because it failed to address and record the mandatory jurisdictional finding under Section 397(2) that a just and equitable winding up would unfairly prejudice the petitioners. Consequential relief granted by the CLB cannot be sustained in the absence of that required finding. Appeal allowed; CLB order set aside.

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