Membership in substance and articles over subscription agreement: Company Law Board jurisdiction was upheld in oppression disputes.

In oppression and mismanagement proceedings, membership may be recognised in substance where the claimant's investment was shown as share application money pending allotment, the funds were used for the company's projects, and the parties treated the claimant as a shareholder; the objection that the claimant was not a formal member failed. An arbitration clause in a subscription agreement did not bar Company Law Board proceedings where the amended articles of association governed the relationship, contained no arbitration clause, and the dispute arose from rights under the articles involving parties not all bound by the subscription agreement. The impugned orders were upheld and the appeal was dismissed.

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Issues: (i) Whether the petitioner before the Company Law Board was a member of the company so as to maintain proceedings under Sections 111A, 397, 398, 399, 402 and 403 of the Companies Act, 1956; (ii) Whether the arbitration clause in the subscription agreement barred the proceedings before the Company Law Board.

Issue (i): Whether the petitioner before the Company Law Board was a member of the company so as to maintain proceedings under Sections 111A, 397, 398, 399, 402 and 403 of the Companies Act, 1956.

Analysis: The amount invested by the petitioner was shown in the company's balance-sheet as share application money pending allotment, the money had been utilised for the projects for which the company was formed, and the conduct of the company and the parties showed that the petitioner was being treated as a shareholder/member. The authorities considered by the Court recognise that, in appropriate cases, the expression "member" in the context of oppression and mismanagement provisions is not confined to a strict technical entry in the register where the claimant has an indisputable entitlement and has been treated as a member by the company.

Conclusion: The petitioner was a member for the purpose of maintaining the proceedings, and the objection to maintainability on that ground failed.

Issue (ii): Whether the arbitration clause in the subscription agreement barred the proceedings before the Company Law Board.

Analysis: The Court held that the relationship between the parties had to be governed by the amended articles of association, which did not contain an arbitration clause. A prior agreement inconsistent with the articles could not govern the rights claimed in the proceedings. In any event, the dispute before the Company Law Board arose from the rights under the articles and involved parties not all bound by the arbitration agreement in the subscription arrangement.

Conclusion: The arbitration clause did not bar the Company Law Board proceedings.

Final Conclusion: The impugned orders were upheld and the appeal was dismissed.

Ratio Decidendi: In oppression and mismanagement proceedings, the expression "member" may be construed in substance and not merely by formal entry in the register where the company has treated the claimant as a shareholder, and rights under a prior agreement cannot override amended articles of association that do not incorporate the same contractual restraint or arbitration clause.

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